Tech stocks led the recent market sell-off, with the Nasdaq briefly dropping into correction territory. Among tech stocks, FANGs were particularly big losers, with every FANG stock dropping nearly 10% off their trailing one-month highs. And, among the FANGs, Netflix (NASDAQ:NFLX) was the biggest loser. At its low, Netflix stock was more than 15% off its trailing one-month high.

What does that say about Netflix stock? It’s risky, especially in this environment with rates rising, a hawkish Fed, and geopolitical risks escalating.

Having said that, Netflix is also supported by one of the more promising long-term growth narratives in the market. This company is changing the entire entertainment industry, and this is a global phenomenon.

While many investors see Netflix as already being the dominant streaming player in the U.S. (and therefore having mitigated growth potential ahead) the reality is that this company is still in the early stages of a global growth narrative. If the company can successfully execute on that narrative, then Netflix stock has a unique opportunity to grow into its massive valuation.

So, what is the takeaway on Netflix stock?

It all comes down to valuation, and valuation is a byproduct of stock market sentiment. So long as sentiment remains positive and the bull market in tech stocks persists, Netflix stock will do fine because its valuation is justified by down-the-road profits.

But, if sentiment weakens and the bull market in tech stocks falters, Netflix will falter, too, because its valuation makes no sense unless you have faith in those down-the-road profits.

Long story short, Netflix stock is a buy so long as the bull market in tech stocks persists. That looks likely, but has yet to be confirmed. Thus, investors shouldn’t be in any rush to buy the dip.

Netflix Has Great Fundamentals

The fundamentals on Netflix are great.

This is a company that dominates on price, convenience, and quality. At roughly $11 per month, Netflix is super cheap and especially so relative to alternatives like cable. Meanwhile, Netflix is the leader of the OTT movement where you can stream anything from anywhere and that means the company dominates on convenience.

Perhaps most importantly, the company continues to defy odds and produce a plethora of original content at an unprecedented pace, the likes of which is creating an unrivaled original content portfolio that subscribers are addicted to.

Put all three of those together, and its no wonder that Netflix is marching toward world domination. Even as Disney (NYSE:DIS) and others enter the market, consumers won’t ditch Netflix because the original content is too good.

Consumers will ditch cable, and ultimately just package together their favorite streaming services together. Netflix will likely be included in all those packages because it simply is the best service out there with the best content.

From this perspective, Netflix’s addressable market is big. Like four billion worldwide internet users big. But, chances are that if you don’t have a free Facebook (NASDAQ:FB) account or use YouTube for free, you won’t be paying up for Netflix. Thus, Netflix’s real addressable market is somewhere around two billion, which is roughly equivalent to the number of Facebook and YouTube users.

Not everyone needs an account. You can have multiple people under one account. Usually, the rule of thumb is one account per household. Average household size globally is roughly 2.6. Thus, assuming two billion people, Netflix’s addressable subscriber market measures about 750 million.

Netflix’s penetration among U.S. households has gone from ~40% last year to ~50% this year and should hit 70% and up over the next decade. Global penetration rates will be lower, and will likely average out just below 50% at scale.

Thus, I think Netflix realistically can hit 350 million subscribers within a decade. But, is that enough growth to warrant buying Netflix stock here and now?

The Valuation Depends on Exit Multiple

Another big growth driver for Netflix is price hikes. The service is super cheap, and multiple surveys show that Netflix can hike prices without churn. Thus, at scale with 350 million subs, I think Netflix’s average subscription cost will be $15 per month. At that rate, you are talking about $63 billion in revenues by 2027.

Gross margins should head higher with price hikes, while big revenue growth should drive significant opex leverage. Overall, it isn’t unlikely that operating margins roar up to 30%. Under that assumption, I think Netflix reasonably can do about $32.50 in earnings per share in 2027.

If you throw a Facebook-type 25 forward multiple on that, you arrive at a 2026 price target of over $800. Discounted back by 10% per year, that equates to a 2018 price target of $380. By that calculus, Netflix stock is a buy here.

But, assuming a Facebook-type 25 forward multiple at scale is aggressive. If tech markets weaken slightly, then Netflix will likely be awarded a growth-average 20 forward multiple. The same math lends itself to a 2018 price target of $300. Worse yet, if you give Netflix a market-average 16 forward multiple in 2026, then the 2018 price target falls to $240.

So, what is Netflix worth? Anywhere between $240 and $380, depending on where valuations pan out in a decade.

In my opinion, the most likely outcome is something between Facebook-type multiple and growth-average multiple. Yes, tech stock have been weak recently. But, in the big picture, it is tough to see sentiment in the tech sector being permanently depressed, even by higher rates.

Technology is moving with such great pace and starting to influence so many parts of our economy that technology dominance is the inevitable long-term outcome in markets.

As such, I think Netflix stock is a buy on this dip. But, I won’t buy until there is confirmation that this near-term shake-out is over.

Bottom Line on NFLX Stock

Netflix stock is a buy so long as technology sector sentiment remains strong and the bull market persists. I think both of those things will happen. But, investors should wait for confirmation of these trends before rushing in to buy the dip.

As of this writing, Luke Lango was long DIS and FB.