Is It Time to Buy This Phenomenal Streaming Stock on the Dip?

Investors have been hit by some turbulence in recent days. Weak U.S. economic data, rising interest rates in Japan and Berkshire HathawayAggressive sales of led to significant declines over the past week for the S&P 500 and the Nasdaq Composite Index hint.

However, savvy investors understand that volatility is the norm when it comes to solid long-term returns. In fact, the selloff could provide lucrative opportunities in otherwise fantastic companies, like this streaming pioneer whose shares are down 10% from their 2024 peak (as of August 6).

Should Investors Buy This Phenomenal Stock on the Dip?

Dominate the new media landscape

Investors seeking exposure to Netflix (NASDAQ: NFLX)pure-play streaming leader, may want to take advantage of market pessimism. There are several reasons to like this company.

Let’s start with Netflix’s early-bird advantage. Its lead in the streaming race allowed it to attract customers at a rapid pace, with revenue growth off the charts. Netflix gained subscribers dramatically because it offered a superior user experience to traditional cable TV.

Sure, the streaming industry is much more competitive now. But Netflix reigns supreme. As of June 30, the company had 278 million subscribers in more than 190 countries. It has become a global media and entertainment powerhouse, with advantages of scale.

Certainly, growth will slow, even if management believes that total addressable market Netflix has the opportunity to reach 500 million smart TV households around the world (who are not yet Netflix customers). In its most mature markets, the US and Canada, Netflix has a long history of successfully exercising its pricing power.

Netflix’s size allows it to generate significant revenue, bringing in $36 billion in the past 12 months. This allows it to spend heavily on producing and licensing content, while also delivering growing profitability. The company expects to post an operating margin of 26% this year. That would be up from 21% last year and 18% in 2022. Netflix is ​​clearly showing the benefits of its scalable business model at a time when competitors are struggling to hit their earnings targets.

Netflix spent a lot of money in the 2010s to acquire subscribers and expand its content offering. Critics never thought the company would generate positive free cash flow. Netflix has proven its critics wrong. The company generates billions of dollars in free cash flow and uses some of it to buy back stock.

The story continues

Don’t ignore valuation

It’s rare for investors to see shares of such a dominant company go on sale. In May 2022, Netflix shares were sold for a price/earnings ratio (PE) of 15, an unprecedented figure. In addition to the general market weakness in a context of rising interest rates, investors were worried about Netflix’s subscriber losses in the first quarter of 2022. But in hindsight, this turned out to be a wonderful buying opportunity.

Netflix stock isn’t about to be as…