Assessing Netflix’s Valuation After 40% Rally and International Expansion News

If you are wondering what to do with your Netflix shares after its remarkable run, you are definitely not alone. Netflix has been a powerhouse in the streaming space, delivering a whopping 40.0% return year-to-date and an astonishing 326.6% gain over the past three years. Even if you have only been watching from the sidelines recently, Netflix’s stock has climbed 2.1% in just the last week and 1.2% in the last month. That kind of momentum gets everyone’s attention, especially when big moves come without the typical market drama.

What’s driving the action now? Investor sentiment has picked up following Netflix’s continued investments in international content and its recent acceleration on ad-supported subscriptions. The company’s announcement about expanding partnerships with telecom giants globally hints at even more room to grow its subscriber base. While these developments have sparked optimism, there is still plenty of debate about whether these gains are truly justified by the underlying fundamentals or just riding a wave of enthusiasm.

But when it comes to pure numbers, Netflix’s value score, where a higher number means more undervalued, currently sits at just 1 out of 6. That suggests traditional valuation checks see the stock as only lightly undervalued, if at all. Of course, valuation has layers, and what matters is not just the checklist approach. Next, let’s break down how the main valuation models stack up for Netflix, before exploring an even deeper way to think about what the stock is really worth.

Netflix scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Netflix Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future cash flows and then discounting these amounts back to today’s value. This approach gives investors a sense of what the business is truly worth based on its ability to generate cash in the future.

For Netflix, current Free Cash Flow stands at approximately $8.6 Billion. Analysts forecast robust growth, with projected Free Cash Flow rising steadily over the coming years. By 2029, it is expected to reach about $22.6 Billion. Beyond that point, Simply Wall St extrapolates further increases, though these rely more heavily on long-term assumptions, since analysts provide only five years of direct estimates.

Using these cash flow projections, the DCF model calculates an estimated intrinsic value for Netflix of $1,016.48 per share. However, with the stock’s current trading price well above this level, the model implies that Netflix is 22.1% overvalued according to these assumptions.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Netflix.

Our Discounted Cash Flow (DCF) analysis suggests Netflix may be overvalued by 22.1%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Netflix Price vs Earnings (PE)

For well-established and profitable companies like Netflix, the Price-to-Earnings (PE) multiple is a widely used indicator of value. It tells investors how much they are paying for each dollar of the company’s current earnings, making it especially relevant when those earnings are strong and growing. The fairness of a PE ratio depends on expectations for future growth, profit margins, and the risks facing the business. In other words, the more quickly a company is expected to grow or the more stable its earnings, the higher its justified PE can be.

Right now, Netflix trades at a PE multiple of 51.5x. This is considerably higher than the broader Entertainment industry average of 27.1x, but actually below the average PE of its direct peers, which sits at 75.3x. Such a premium can imply strong expectations for growth, profitability, and resilience compared to the average entertainment stock, but still suggests Netflix is seen as less risky or more mature than some of its high-flying peers.

Simply Wall St’s proprietary “Fair Ratio” adds more nuance by factoring in the company’s growth forecasts, profit margins, industry positioning, and risks, as well as its size. For Netflix, this Fair PE Ratio is calculated at 37.2x. Unlike simple comparisons to peers or the industry, this approach recognizes that not all high PE stocks are automatically overvalued. Sometimes, the underlying fundamentals back up a bigger number.

Comparing Netflix’s actual PE of 51.5x with its Fair Ratio of 37.2x suggests the stock is trading at a significant premium to what would be considered fair given its characteristics and prospects. That points to Netflix being overvalued on this metric.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Netflix Narrative

Earlier we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives, a smarter and more dynamic approach to investing, available to millions of users within Simply Wall St's Community page.

A Narrative is your own story behind the numbers. It is where you connect your view of a company’s future (such as what you believe about Netflix’s subscriber growth, profit margins, or new business pivots) with a financial forecast and then use that to calculate your own fair value for the stock.

This process goes beyond static models, helping you answer, “What do I think Netflix is worth?” Narratives are simple to create, automatically calculate a fair value based on your forecasts, and update dynamically as new information like earnings or major news emerges.

It is an easy way to see how your view stacks up against others, and to make more grounded decisions about when to buy or sell by comparing current Price to your Fair Value (or the range of other community perspectives).

For example, right now the highest Narrative on Netflix estimates a fair value of $1,350 per share, while the lowest is $798. This is a reminder that even for the same company, different investors can have very different expectations about its future.

For Netflix, however, we'll make it really easy for you with previews of two leading Netflix Narratives:

🐂 Netflix Bull Case

Fair Value: $1,350.32

Currently trading at approximately 8.1% below this fair value

Revenue Growth Rate: 12.5%

• Analysts see global ad tech rollout and international partnerships driving robust subscriber and revenue growth. New business initiatives are expected to support long-term margin expansion.
• Strong investments in localized content and advanced AI-powered user experiences could bolster member retention, engagement, and operating efficiencies.
• Risks include intensifying competition, rising content costs, market saturation, and potential regulatory pressures. The consensus view is that current pricing is close to fair value given expected growth.

🐻 Netflix Bear Case

Fair Value: $797.74

Currently trading at approximately 55.6% above this fair value

Revenue Growth Rate: 13%

• Industry consolidation and Netflix’s scale help negotiations, but the current share price far exceeds calculated fair value based on future cash flows and more moderate margin expansion assumptions.
• Ad-plans and paid sharing are projected to support user and revenue growth. Content costs and competition could limit margin improvements longer term.
• Risks include challenges with the execution of new initiatives, possible margin pressure from strikes or global expansion, and the potential for overoptimistic growth estimates compared to underlying fundamentals.

Do you think there's more to the story for Netflix? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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