After Netflix stock crashes $300 in 2 months, should I buy below $400?

Netflix stock has collapsed from over $700 in mid-November to below $400 on Friday. After crashing so hard, is it time to buy discounted NFLX?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

After the bull market of 2020-21, the top for tech stocks may already have been and gone. The S&P 500 just had its worst week in a year, losing 8.7% since its 4 January peak. Meanwhile, the Nasdaq has dived 15.1% since its record high on 22 November. Thus, it’s been a bad start to 2022 for US stocks in general and tech stocks in particular. But a few stocks have taken a truly savage beating since October. One of these ‘post-Halloween horrors’ has been Netflix (NASDAQ: NFLX) stock, which has plunged spectacularly since November.

NFLX exploded from 2012-2021

Go-go growth stock Netflix has generated outstanding gains over a decade. Ten years ago, shares in the video-streaming provider closed at $14.32 on 20 January 2012. Five years later, NFLX had surged to close at $138.60 on 20 January 2017. That’s a mammoth gain of 867.9% in 60 months. Yet Netflix stock kept soaring, hitting an all-time high of $700.99 on 17 November 2021. That’s almost 50 times the closing price on 20 January 2012, under 10 years earlier. Indeed, had I bought $1,000 of Netflix shares at $14.32 on 20 January 2012 and sold at 2021’s peak, I’d have over $48,950. Wow.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Netflix stock gets a nasty knock

However, Netflix stock has been knocked back since November. This followed news that the Federal Reserve — the US central bank — will tighten monetary policy more rapidly than previously indicated. The Fed also expects to raise interest rates three or four times in 2022. With liquidity set to fall and interest rates set to rise, this spooked tech investors. Hence, a wave of selling in the past three months has driven down tech stocks. At the end of 2021, Netflix closed at $602.44, down almost $100 from its November peak.

On Thursday evening, Netflix unveiled its fourth-quarter earnings report. This revealed slowing subscriber growth. The group added 8.3m net subscribers in Q4, versus a forecast 8.5m. What’s more, Netflix expects to recruit only 2.5m paid net subscribers in Q1 2022 — well short of the 4m recruited in Q1 2021. As a highly rated growth stock, Netflix has to keep its engine running hot. And signs of slowing down has smashed its shares before. Hence, on Friday, the stock closed at $397.50 — crashing $110.75 (-21.8%) overnight. Ouch.

Would I buy NFLX today?

From its all-time high of $700.99 to Friday’s close of $397.50, Netflix stock has lost $303.49. That’s a collapse of almost half (-43.3%) in just over two months — a punishing blow for Netflix shareholders. But having dived so hard, surely the stock will bounce back, right? Not necessarily.

Netflix pivoted to become a streaming service in January 2007. Over two decades, it has gone from a scrappy start-up (listed on 23 May 2002) to a massive global business. At the current stock price, Netflix is valued at over $176bn. Today, it’s a tech Titan, but for it to remain so, Netflix has to keep growing subscribers, revenues, profits, earnings and cash flow. But woe betide the streaming giant if growth stagnates or turns negative. Because if Netflix goes ex-growth, so too may its shares. And all the while, deep-pocketed competitors are investing heavily to steal its lunch.

Right now, Netflix stock trades on 35.8 times earnings, while offering an earnings yield of 2.8% and no dividend. As an old-school value investor, these fundamentals aren’t attractive to me. I can see this stock’s attractions to risk-taking growth/tech investors but I don’t own NFLX today and I wouldn’t buy, even at Friday’s deeply discounted price. 

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more

Cliffdarcy has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Saucepan on a gas hob
Investing Articles

The Centrica share price is up 65%. Here’s why I sold

The Centrica share price has soared nearly two-thirds in a year. So why has our writer dumped his shareholding?

Read more »

Modern suburban family houses with car on driveway
Investing Articles

As the Howden Joinery share price falls, I’d buy and hold

The Howden Joinery share price has been falling. But Christopher Ruane likes its business model and is weighing adding it…

Read more »

Hand holding pound notes
Investing Articles

The tumbling Persimmon share price means an 11.3% yield! Should I buy?

A falling Persimmon share price has pushed the dividend yield into double-digits. Our writer considers his next move.

Read more »

Innovation and new ideas lightbulb concept 2022
Investing Articles

As stock markets crash, I’d buy these 4 FTSE 100 fallers!

After US stock markets tumbled on Wednesday, the FTSE 100 duly followed suit on Thursday. But falling share prices revealed…

Read more »

Compass pointing towards 'best price'
Investing Articles

A 7.6% dividend yield! Is the Aviva share price a bargain not to be missed?

The Aviva share price has recovered well since the 2020 stock market crash. As one of the top FTSE 100…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

Stock market crash: I’m hunting giants for future gains!

In this latest stock market crash, selling pressure is slamming share prices. But some great company stocks are being crushed,…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

With a P/E of just 8, this social media newcomer is a cheap stock pick!

This social media firm looks like a cheap stock pick for my portfolio. For a growing tech firm, it certainly…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

Warren Buffett has been selling dividend stocks. Should I be doing the same?

As Warren Buffett sells out of Abbvie, Bristol-Myers Squibb, and Verizon, our writer wonders whether he ought to be looking…

Read more »