One of the most basic pieces of investing advice goes something like this: Buy low, sell high. Sounds easy enough, but determining when a stock is at a “low” point is a lot harder than it sounds. Even at rock bottom, a company can keep sinking. And even near all-time highs, it can keep climbing.
One (imperfect) way to figure out when a stock is at a low point is to look at valuation metrics, such as the forward price-to-earnings (P/E) ratio. That brings us to Netflix (NASDAQ:NFLX), a streaming specialist that has been struggling recently and whose forward P/E has declined substantially. Is the stock a buy at current levels?
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Netflix’s forward P/E is near 10-year lows
First, let’s look into the problems Netflix has faced recently. One of them is lower-than-expected engagement. According to some reports, Netflix users are opening the app and viewing shows less often than before. Management admitted that engagement was behind their own expectations.
During the company’s third-quarter earnings call, CFO Spencer Adam Neumann said: “And to be clear, we want to grow view hours faster. We’re not satisfied. We’re working on it.” He stressed that the underlying business remains healthy, but “healthy” isn’t good enough for a tech stock valued at higher multiples than its peers. Unless Netflix can boost engagement, the market may not be satisfied, and the stock could continue to decline. But it gets worse.
Netflix recently announced that it is reducing its fiscal year 2026 advertising revenue guidance to $2.7 billion, down from $3 billion. That’s not a huge change, but for a company that is already facing various headwinds, it’s less than ideal, to say the least. This guidance cut may also be a symptom of a deeper issue Netflix is facing: a lack of engagement. Although, in fairness, management attributed it to a slower-than-expected rollout of some ad product capabilities.
Note that these are just the most recent obstacles the company has encountered. Over the past 18 months, Netflix has also dealt with an increasingly competitive streaming landscape, a failed blockbuster acquisition, and the perception that price increases have become too common.
It’s no wonder, then, that the stock price and valuation have fallen as much as they have. Netflix is trading at 17.3x forward earnings, according to some estimates. That’s about as low as it has been in a decade and well below the company’s 10-year median of 48.4x.
