The One Stat That Makes Netflix Stock a Buy

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Netflix, Inc. (NASDAQ:NFLX) has dropped by almost 20% since just before its ugly Q1 earnings report in April. And as a result, many investors have written off NFLX stock as dead money in 2016.

The One Stat That Makes Netflix Stock a Buy
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But while sentiment is weak in Netflix stock right now, there is one major factor that will keep this streaming video giant in play. Namely, the death of cable.

That factor is illustrated best by a recent Pew Research report that shows 24% of U.S. adults do not have either satellite or cable TV service. And they’re not all cord cutters, either — of that number, 9% have never subscribed at all and are “native” to streaming content vs. cable.

This is a powerful force that cannot be reversed. And as more folks are moving away from cable, Netflix remains the dominant streaming service.

Why NFLX Is Still a Buy

Consider that even as NFLX stock posted poor guidance and revenue that disappointed Wall Street, it finished the first quarter of 2016 with 81.5 million customers worldwide and almost 47 million U.S. subscribers. That’s even in the face of serious competition from Hulu, HBO Go and Amazon.com, Inc. (NASDAQ:AMZN).

By contrast, Comcast Corporation (NASDAQ:CMCSA) had just 22.3 million paying video customers at the end of 2015 — and is struggling to keep that smaller number constant.

Sure, Netflix is challenged on the top line. And overseas, there are still problems with NFLX stock turning a profit.

But when you look at the secular shift of entertainment away from traditional cable providers and into on-demand streaming, the deck is just stacked way too much in favor of Netflix right now for it to stay down for long.

There will assuredly be volatility in a high-growth momentum play like this, and there’s probably more declines to come in the short-term given sentiment on Netflix stock right now.

But if you’re looking to the long-term of entertainment, it’s hard to bet against NFLX stock in an age when cable TV is losing and streaming is winning.

There are other numbers that matter, sure. But that’s the one Netflix stock investors should take to the bank.

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.

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