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I’ve got cash sitting in my Stocks and Shares ISA right now and I’m wondering if I should buy Netflix (NASDAQ: NFLX) shares for my account. Over the last year or so, they’ve fallen by around 50% and they now look pretty cheap.
But could this be a classic ‘value trap’? Let’s take a closer look.
Q2 earnings were solid
Netflix posted its earnings for the second quarter of 2026 last night and they were relatively solid. Revenue was up 13% year on year to $12.6bn while diluted earnings per share came in at $0.80 versus $0.72 a year earlier.
The stock fell after earnings though – as I write this on Friday (17 July) it’s down about 10%. So, what’s going on?
Why is the share price still falling?
Well, there were a few things in the results that investors didn’t like. One was Q3 guidance – this quarter, top-line growth is expected to fall to 12%.
Another was the fact that the company said that it will publish less data on customer engagement going forward. There were already some concerns over engagement and the fact that viewers seem to be less engaged with shows after the first season so this move hasn’t helped sentiment towards the stock.
Other issues impacting investor sentiment
Looking beyond the Q2 report, there are some other issues spooking investors at the moment. One is a lack of blockbuster shows.
Right now, there’s nothing that’s really exciting on its platform. This is presenting opportunities for competitors like Apple TV and Amazon Prime.
Another concern is competition from YouTube and short-form video. Increasingly, younger viewers are spending more time watching short-form videos.
So, there are some questions around Netflix’s business model. We can’t just assume that the majority of people are going to be happy to watch regular TV shows on the platform forever – viewing habits are changing.
Will I buy Netflix?
Putting this all together, it does look a bit like a value trap at the moment, if I’m honest. While there’s still a lot to like about the company, including a huge customer base, recurring revenues, and a high level of profitability, there’s no positive momentum.
It’s worth noting that today, at least eight brokerage firms have cut their price targets for the stock. That’s a classic sign of a value trap.
Of course, after a 50% share price fall, there is always the chance of a rebound at some point. At some stage, we could see value hunters step in and buy, supporting the stock.
However, with the price-to-earnings (P/E) ratio still near 20, I do think there’s potential for further share price weakness in the near term. So, I’m going to hold off on buying for now – I want to see a little more positive momentum both within the business and in the share price.
Should you invest £5,000 in Netflix right now?
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Edward Sheldon owns shares in Apple and Amazon.
This story originally appeared on Motley Fool
