Netflix Stock Down 52% From High: Time for Investors to Consider It?

Netflix Inc Top Player in Video Streaming Market

The COVID-19 pandemic drove the massive buying of certain goods and services as many people were shut in at home. There was a takeoff the demand for services and products such as food delivery, exercise equipment (and remote classes), and various types of technology—especially video streaming.

Shares of video streaming leader Netflix Inc (NASDAQ:NFLX) vaulted to $700.99 on November 17, 2021.

But savvy investors knew that much of NFLX stock’s momentum was based on an unusual event: the pandemic. Since that high, the stock has plummeted. Netflix stock traded down to $329.82 on March 14, a whopping 52% retrenchment from its high.

The question now is: “Is it time for investors to consider Netflix Inc again?”

Some argue that NFLX stock is now a bargain. While its valuation is definitely more reasonable than before, I wouldn’t go as far as saying it’s a case of growth at a reasonable price (GARP).

After years of losing money, Netflix Inc has become highly profitable. That’s the good news.

Even after Netflix stock’s price deterioration, the company is trading at 26 times its consensus 2023 earnings per share (EPS) estimate and 4.4 times its consensus 2023 revenue estimate.

The higher multiples are deserving for the kind of business growth Netflix Inc has been delivering, but it might not be a good idea to load up on NFLX stock at this point. Investors who like the stock might be better off adding shares to their portfolios in increments.

Moreover, the company faces increased competition from Amazon.com, Inc. (NASDAQ:AMZN) and Walt Disney Co (NYSE:DIS), as well as (to a lesser degree) Apple Inc (NASDAQ:AAPL).

Long-Term Trendline Is Bullish for Netflix Stock

Netflix Inc’s 20-year stock chart shows an impressive upward trendline that has been in place since early 2002:

Chart courtesy of StockCharts.com

There’ve only been two instances of NFLX stock testing trendline support: in 2008 (subprime mortgage sell-off) and in 2012. In both cases, the stock bounced.

Since 2012, Netflix stock has easily held well above the trendline.

NFLX Stock Faces Short-Term Uphill Battle

Netflix Inc’s one-year chart below shows its stock in a nasty downward sell-off from its high.

This included the emergence of a death cross pattern in February, when Netflix stock was trading just above $500.00. A death cross occurs when the 50-day moving average breaks below the 200-day moving average. It usually results in additional selling, as was the case with shares of Netflix Inc.

NFLX stock subsequently fell by another 25% after the sell signal, which included a negative downside trade gap.

Chart courtesy of StockCharts.com

At this point, recovering the gap is the ultimate test. Whether $330.00 is a valid support level is uncertain, but Netflix Inc’s long-term stock chart indicates a potential base around $300.00, which could hold and represent the downside risk level.

Netflix stock has been showing improved relative strength back to neutral and a reversal in its moving average convergence/divergence (MACD) back to its first buy signal since October 2021.

Analyst Take

Ultimately, for Netflix Inc to regain its edge as an investment, it needs momentum to return to the stock market.

Based on its risk/reward situation, NFLX stock looks compelling for traders. Netflix stock could retake its 50-day moving average of $399.59, followed by the gap at $450.00–$500.00. This would be the immediate target if momentum resurfaces. Above that level is resistance at $600.00 to $650.00.