Netflix (NFLX) continues to drop like a rock with shares plunging to $107 a share today. The stock has been punished by the Street over the past few months. Shares are not severely overvalued as they have been for years. This is causing some investors are dipping in and buying shares of the company. Could this be a big mistake?
Netflix Is Reasonably Valued
Netflix is not a poor stock to speculate on at its current level but I am still not buying yet. The stock has not yet established a bottom as it continues to drop. Netflix looked like it was bottoming out in the mid 120′s but the stock took that level out with ease. The low for the stock is currently $107 but I am not positive that is the bottom either. I would like to watch the stock for a few weeks and see where Netflix will settle.
Netflix received some more bad news as Microsoft announced that the company will start entering the streaming content space. There seems to be a new competitor emerging in the sector every week with far greater resources than Netflix has. Netflix was able to carve out a nice niche for itself by being one of two major players in the industry. Since the company’s revenue stream has grown more competitors are entering the market seeking to wrestle market share away from Netflix.
The stock trades at just 28 times earnings which is not a bad price to pay based on the projected earnings growth. It seems close to properly valued. I still think however that Netflix can get even cheaper than it is. My guess is that the stock crashes through the $100 mark. If I were to ever invest in this company I would need to buy shares at a significant discount because the long term future is so shaky.