NFLX is attempting to acquire Warner Bros. The stock has dropped roughly 31% from its highs. In big acquisitions, the stock of the company doing the buying usually drops because investors worry they are overpaying or taking on too much complexity. The fact that a bidding war is starting with Paramount adds uncertainty.Strengths:
PEG is 1.14 [A low PEG under 1.5 usually suggests a stock is undervalued considering how fast it is growing.]
Netflix is a consumer growth stock. Finding a tech giant growing earnings at 25%+ per year (EPS next 5Y is 25.64%) trading at a PEG of 1.1 is rare. The recent price drop has made the valuation very attractive relative to its growth.
Debt/Eq is 0.66 [A ratio under 1.0 is generally considered very healthy and conservative.]
Netflix has very manageable debt. This gives them the power to make bold moves, like trying to buy Warner Bros without risking bankruptcy.
Profit Margin is 24.08
For every dollar of subscription money they take in, they keep 24 cents as pure profit. This is high for a media company that spends billions on content creation. It shows their business model has fully matured.
Weaknesses
If Netflix wins the war for WBD, they have to integrate a massive, legacy media company. This is messy, expensive, and dilutes existing shareholders. If they lose the war to Paramount, the stock might bounce back, but they lose a strategic asset. Uncertainty kills stock prices!
IMO, Netflix's problems are strategic which is a merger drama, not structural.
