Netflix Stock: Should You Buy the Post-Earnings Dip?

Streaming giant Netflix (NASDAQ:NFLX) reported its latest quarterly earnings numbers last week, and suffice to say, they weren't good enough to inspire a turnaround in its share price. Netflix's stock, which was already struggling heading into the earnings report, has proceeded to decline even further after posting its latest numbers.

Now down around 30% since the beginning of the year and trading at around levels it hasn't been at in over two years, its valuation may look enticing. Should investors consider buying the streaming stock on weakness, or could there be more of a sell-off to come for Netflix?

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Why did Netflix's stock fall after earnings?

On Oct. 20, Netflix reported its third-quarter earnings, covering the three-month period ending Sept. 30. It met expectations on the top line, with revenue totaling roughly $12.9 billion, and earnings per share of 87 cents were better than analyst expectations of 82 cents.

The biggest concern for Wall Street appears to be Netflix's guidance, as the company's outlook is a bit underwhelming, with full-year revenue projected at $51.1 billion. It represents a 13% year-over-year increase, but it's at the lower end of the range Netflix previously set, and analyst expectations were for $51.2 billion.

In short, Netflix's numbers weren't bad this past quarter; they simply didn't do enough to alleviate concerns about its slowing growth, and thus the stock has fallen since. The decline hasn't been massive, but Netflix's stock has nonetheless hit new lows.

Has Netflix's stock become a bargain buy?

Netflix has lost more than 40% of its value over the past 12 months, and it is now a cheap-looking stock relative to the S&P 500. The stock is trading at a forward price-to-earnings (P/E) multiple of just 17, which is based on analyst expectations of its earnings in the year ahead. By comparison, the average stock in the broad index is trading at a forward P/E of 19.

While there do appear to be some challenges ahead for Netflix and for it to prove to investors that it can keep its consumers engaged, I believe the business is still in good shape. Paying this low a multiple for a stock that's growing in the double digits, with the excellent fundamentals Netflix has, can make it an appealing buy right now. While there doesn't appear to be a near-term catalyst to turn the stock around, patient investors may see significant returns by buying and holding, given its drastically reduced valuation.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.