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Netflix, Inc. Stock Just Plunged 16% This Week: Sell Signal or Time to Buy?

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Netflix (NASDAQ:NFLX) shares fell 7.8% on Thursday as part of a broader market selloff. The digital media stock then tumbled another 7.6% on Friday, dropping back to prices not seen since before the blowout second-quarter report in July.

Netflix shares ended the week below $104 per share. That's a nearly 20% discount from the all-time high reached on August 6.

Is it time to sell Netflix and run for the hills -- or to take advantage of this discount to build your Netflix position instead?

What's wrong? You know the mythical old adage: "Buy when there's blood in the streets."

Whether you attribute that phrase to John D. Rockefeller or the Rothschild banking clan, the maxim makes sense. If you want to buy low and sell high, why wouldn't you get your wallet and checkbook ready when your favorite stocks suddenly show up in the bargain bin?

The corollary to this, of course, is also very simple: "The bigger they are, the harder they fall."

Before this pullback started, Netflix stock had doubled in just 12 months. Its three-year return stood at an incredible 1,500%. Critics often call Netflix a "momentum stock," always with an implied sneer at the low quality of these high-flying disasters. Like Icarus, momentum stocks are assumed to trade on hot air and empty promises, devoid of fundamental business strength and real value-driving news. In this view, Netflix may have flown too close to the sun and started a massive correction.

Wedbush Securities analyst Michael Pachter, for instance, recently set his Netflix target price at $40 per share. His valuation is based strictly on trailing earnings and modest P/E multiples. If the market quickly adopts that conservative view, Netflix could fall another 60% or more, even from this discounted starting price.

If you agree with this point of view, then it's definitely time to sell the stock or maybe even short it. In fact, short-selling might very well be your only bearish option (short of trading options, of course). If you share Pachter's view on Netflix, I'd be shocked to see you actually owning shares in the first place.

Why? Well, that leads us right into...

No news is bad news?
You see, Netflix has suddenly plunged 16%...


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