Investors reacted to the Netflix earnings announcement by bolting for the exits. In after-hours trading, the company’s stock plunged more than16% to $57 a share. Does this finally make the stock a bargain?
NFLX PE Ratio TTM data by Charts
Not really. True, just looking at the chart above shows that the company’s PE ratio appears to have fallen off a cliff over the last year or so. But its current trailing 12-month P/E is more than double that of the S&P 500 index, and as yesterday’s report showed, it’s having difficulty delivering on the “E” part of the equation.
Part of the problem is that the cost of obtaining all those new customers it is adding – especially overseas – is proving to be a drag on earnings. Netflix announced that its subscription costs soared 28% in the quarter. No wonder its profit margins are under pressure, as seen in the chart below. (Buying content has gotten pricier, too.)
NFLX Profit Margin Quarterly data by YCharts
The company’s free cash flow is at its lowest level since its infancy.
NFLX Free Cash Flow data by…