Netflix (NASDAQ:NFLX) has seen its share prices tumble from over $120 as recently as October to less than $85 today, a staggering loss for a business that was for many years considered a growth powerhouse as streaming boomed. The stark selloff, however, could prove to be an attractive entry point for investors searching for bargains. Is Netflix stock on sale now, or does the selloff of the last six months accurately reflect deteriorating views of the company’s value?
Netflix’s Gamble on Warner Bros
Much of the investor uncertainty around Netflix resulted from its efforts to buy Warner Bros. Though such an acquisition would have added massive amounts of content to Netflix’s already impressive portfolio of intellectual properties, the price it planned to pay was quite high and could have risked putting a drag on the streaming service. Unsurprisingly, the market reacted negatively to what was perceived as a poor allocation of capital.
The situation was even further confounded by Paramount’s surprising offer to buy Warner out at a higher price. Initially, Netflix had offered to buy the movie and streaming media assets of Warner Bros. for $27.50 per share. Paramount subsequently countered with $30 per share, offering to buy the entirety of Warner Bros. Discovery instead of splitting the company’s studio and streaming properties off from its cable television networks. On February 26th, however, Netflix declined to match Paramount’s most recent bid, sending shares of NFLX higher in after-hours trading. This puts one of the largest headwinds the stock had been facing behind it, potentially paving the way for better times ahead for shareholders.
Netflix Full Year Earnings Very Positive
Netflix also recently took a further hit after the release of its full-year earnings report and 2026 guidance. Last year saw very positive revenue growth of 16 percent to $45.2 billion, paired with an expansion of Q4 EPS to $0.56 against $0.43 in the year-ago quarter. Q4 proved especially positive, with revenue rising 18 percent and operating income skyrocketing by 30 percent on a year-over-year basis to $3.0 billion. Netflix even crossed the milestone of 325 million paid subscribers in the final quarter of the year.
The problem, however, was the somewhat low forward guidance issued by management alongside the most recent earnings report. In 2026, management expects revenue growth to slow to the range of 12-14 percent. Operating margin is expected to be about 31.5 percent for the year, though more operating income growth is expected in H2 than in H1. Earnings in Q1, however, are expected to reach $0.76 per share, up from just $0.66 in Q1 of 2025.
Here, it’s worth mentioning the very strong margins and returns Netflix is already generating. On a trailing 12-month basis, Netflix’s net margin has been 24.3 percent, while its return on invested capital has totaled 25.8 percent. Both of these metrics, however, have been dwarfed by its 43.5 percent return on equity. The fact that Netflix is still generating such impressive returns while selling off so sharply may be one of the stronger arguments for the business being on sale at the moment.
Has NFLX Become Undervalued?
Even after shedding so much value over the past year, Netflix is still trading at 30.1 times trailing 12-month earnings and 7.3 times sales, as well as 34.9 times operating cash flow. While this is on the lower side relative to the P/E ratios NFLX has averaged over the past few years, it may not initially look like a deep enough discount to entice many value investors. For reference, Netflix’s P/E is still slightly higher than the average of the S&P 500, which currently stands at 29.7.
It is worth mentioning, however, that Netflix has fallen toward the lower end of its analyst price target range. The range of target prices for NFLX runs from $79 to $151, with a consensus price of $111.43. With shares currently priced at $82.70, even the lowest target would see only modest losses, while the consensus target would imply returns of over 34 percent. Even with the difficulties the business has been facing recently, 22 of the 35 analysts covering Netflix still rate it as a buy.
Does Netflix Still Have Its Moat?
With streaming competition heating up, it’s also worth asking whether or not Netflix still has a strong enough moat to protect its business and growth going forward. While Netflix’s competitive position isn’t as strong as it was in the early days of streaming, the business still benefits from a first-mover advantage that has allowed it to get out in front of many of its competitors and accumulate a massive base of subscribers. Moreover, Netflix’s stable of original intellectual properties will likely ensure that viewers will continue subscribing over the long run.
Acquisitions like the attempted buyout of Warner Bros. could also have their place in building Netflix’s moat. By acquiring legacy IPs, Netflix can add value for its viewers and bring more content under a single subscription. Although many investors were less than sanguine about the price Netflix offered to pay for Warner Bros. before being outbid by Paramount, the basic idea of building its competitive advantage through strategic acquisitions is likely a sound one.
Is Netflix Trading at a Discount?
Although NFLX still commands a relatively high valuation, the stock could prove to be a solid long-term compounder that’s currently trading at a significantly reduced price. Importantly, Netflix has demonstrated its ability to increase revenue through advertising even as its US business has matured. Last year, Netflix’s ad revenues more than doubled, reaching over $1.5 billion, despite viewing hours only rising by 2 percent in the second half of the year. Netflix also increased its prices while simultaneously increasing its membership count last year, demonstrating fairly robust pricing power.
All told, Netflix appears to be a strong business trading at what is likely at least a moderate discount to its fair value. Considering both the business’s performance and its status as one of the largest powers in the media industry, NFLX could be a decent buy while prices remain depressed.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.