While Netflix stock (NFLX) outperformed the market and the broader tech space in the first four months of the year, it has since lost momentum. The stock has gained just about 1.7% over the last three months while the S&P 500 Index ($SPX) is up a cool 12.4% over the period.
Netflix is down 14% from its 2025 highs and is in correction territory. The stock has been out of favor with the markets for the last few months despite strong financial performance. For instance, it fell 13% in July despite posting a stellar set of numbers for the June quarter and raising its 2025 guidance. In this article, we’ll examine whether Netflix is now nearing the “buy zone” following the recent underperformance.
To begin with, let’s understand why Netflix stock has underperformed the markets over the last three months. NFLX’s rally in the first four months of the year was backed by a supportive macro environment as it was seen as a defensive play amid trade tensions. For most users, their Netflix subscriptions won’t be the first discretionary spending or subscriptions to be axed in difficult economic times.
As the trade uncertainty started easing, investors pivoted to more cyclical names, which lowered the appeal for defensive plays like Netflix. It didn’t help that Netflix’s forward price-earnings (P/E) multiple expanded into the 50s, which even some of the bulls found hard to justify.
Netflix’s forward P/E is now 44.9x while the P/E-to-growth multiple is 1.97x. While the multiples are still not mouthwatering, they are digestible, and the risk-reward looks a lot more balanced now.
Netflix has established itself as the preeminent streaming company and came out shining amid the “streaming war.” The streaming industry is in a structural growth phase as users continue to pivot from linear TV to streaming. While the streaming industry’s growth might eventually settle at a lower base, Netflix should be able to capture a significant portion of the incremental growth.
The following factors also bode well for Netflix over the medium to long term.
