Does the Latest Sports Streaming Push Make Netflix Shares Worth a Closer Look?

• Thinking about scooping up Netflix stock, or maybe wondering if you should hold on? It is a question every investor has, especially when the price seems full of promise.
• Netflix has seen its share price move up 1.8% over the past week and deliver an impressive 19.7% gain year-to-date. However, it did dip 3.5% in the last month, keeping volatility front and center.
• News has centered around Netflix’s expansion into live sports streaming and global content deals. This signals an evolving strategy that could drive even more user growth. These developments may explain the recent lift in optimism among investors and the lively swings in the stock price.
• According to our checks, Netflix scores a 2 out of 6 on our current valuation scorecard. This makes it an interesting case to break down. We will walk through what that means, explore common ways to judge value, and let you in on a smarter approach that could change how you think about Netflix by the end of this article.

Netflix scores just 2/6 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 evaluates a company's value by projecting its future cash flows and discounting them back to today, providing an estimate of its intrinsic worth. This approach helps investors gauge whether a stock is priced attractively compared to its fundamental value.

For Netflix, the model begins with its latest reported Free Cash Flow, which stands at $9.1 Billion. Analysts provide FCF estimates for the next five years, showing steady growth, with projected cash flows reaching over $14.5 Billion by 2029. Beyond that, Simply Wall St extrapolates further by estimating that Netflix could generate over $20.5 Billion in Free Cash Flow by the end of 2029 and even higher in subsequent years. All figures are reported in US dollars.

After discounting all these future cash flows to their present value, the DCF approach calculates an estimated fair value for Netflix shares at $86.54. Compared to its current market price, this implies the stock is trading at a 22.7% premium. According to this model, it appears to be overvalued.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Netflix may be overvalued by 22.7%. Discover 928 undervalued stocks or create your own screener to find better value opportunities.

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

Approach 2: Netflix Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation metric, especially for profitable companies such as Netflix. It directly relates a company’s market value to its actual earnings, making the PE ratio a useful tool for investors who want to gauge if a stock is attractively priced relative to its recent profitability.

It is important to note that a "fair" PE ratio depends on more than just current earnings. Companies with higher growth expectations or lower perceived risk can often justify a higher PE, while those facing uncertainty or slower growth typically command a lower one. Investors use these benchmarks to help assess whether a stock is trading at a reasonable price.

Netflix is currently trading at a PE ratio of 43.1x. This is noticeably above the Entertainment industry average of 20.8x and below the peer average of 76.3x. Simply Wall St’s proprietary “Fair Ratio,” which considers Netflix’s earnings growth, profitability, risk profile, market cap, and industry nuances, is calculated at 36.1x. Unlike simple peer or industry comparisons, this Fair Ratio provides a more tailored and accurate sense of what Netflix’s valuation multiple could be, factoring in all the unique elements that affect its long-term prospects.

Given Netflix’s current 43.1x PE versus a Fair Ratio of 36.1x, the stock appears to be trading at a premium using this approach. This signals it may be slightly overvalued based on its fundamentals relative to what is indicated by the Fair Ratio.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1439 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Netflix Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a smarter and more dynamic way to make investment decisions. A Narrative is simply your perspective or story about a company like Netflix, linking your assumptions about future revenue, profit margins, and growth with a specific fair value you believe is justified, all based on your own view of the business.

On Simply Wall St’s Community page, Narratives make it easy to express and justify your view. You outline your forecasts and see the implied fair value, so you can compare it directly to today’s share price. This approach goes far beyond static ratios. Narratives constantly adapt when new information (for example, quarterly results or big news) is released, ensuring your outlook remains up to date.

Different investors may build very different Narratives. For example, the most optimistic Netflix Narrative currently estimates a fair value above $1,600 per share, while the most conservative puts it below $750, simply because they each make different assumptions about subscriber growth, margins, or industry trends.

If you want to make smart decisions about when to buy or sell Netflix, start by creating or following a Narrative. It is faster, personalized, and puts the latest data and stories at your fingertips.

Do you think there's more to the story for Netflix? Head over to our Community to see what others are saying!

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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