Is Netflix Still Worth the Price After Its Recent Pullback and DCF Valuation Results?

• Wondering if Netflix is still worth your money after its rollercoaster run, or if the real upside has already been priced in? You are not alone. This is exactly the kind of stock where valuation matters most.
• The share price has pulled back recently, down about 5.0% over the last week and 17.8% over the past month. Yet it is still up 7.3% year to date and 3.6% over the last year, with a 227.4% gain over three years and 78.1% over five years reminding investors how powerful this name can be in a sustained trend.
• That volatility has come against a backdrop of constant headlines about streaming wars, password sharing crackdowns, and Netflix doubling down on content and new features to keep subscribers engaged while competitors rethink their strategies. From experimenting with ad supported tiers to testing new ways to monetize its large user base, the company keeps giving the market fresh reasons to reassess both its growth runway and its risk profile.
• Despite this, Netflix only scores 1 out of 6 on our valuation checks, which suggests the stock screens as overvalued on most traditional metrics for now. Next we will break down what different valuation approaches say about the shares and, by the end, explore a more nuanced way to think about what Netflix 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

A Discounted Cash Flow model estimates what a company is worth today by projecting its future cash flows and discounting them back to a present value. For Netflix, the model used is a 2 stage Free Cash Flow to Equity approach, based on its ability to generate cash for shareholders.

Netflix currently generates roughly $9.1 billion in free cash flow over the last twelve months, and analysts contributing to this model expect this figure to climb over time as the business scales. Projections used in the model see annual free cash flow rising to around $31.0 billion by 2035, with analyst forecasts informing the first few years and then extrapolated growth assumptions applied beyond that period.

Discounting all those projected future cash flows back to today results in an estimated intrinsic value of about $80.15 per share. Compared with the current share price, this DCF output suggests the stock is roughly 18.8% above the model’s estimate of intrinsic value, indicating that the market price in this scenario reflects a very optimistic long term growth path.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Netflix may be overvalued by 18.8%. Discover 907 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

For a consistently profitable business like Netflix, the price to earnings, or PE, ratio is a useful shorthand for how much investors are willing to pay for each dollar of current profits. In general, faster growth and lower perceived risk justify a higher PE, while slower growth or higher uncertainty usually call for a more modest multiple.

Netflix currently trades on a PE of about 41.7x, roughly double the Entertainment industry average of around 20.3x and still well below the broader peer group average of about 86.5x. To move beyond simple comparisons, Simply Wall St uses a proprietary Fair Ratio, which estimates what a reasonable PE should be given Netflix earnings growth outlook, profit margins, industry dynamics, market cap and specific risk factors. This Fair Ratio for Netflix is calculated at approximately 33.2x, which sits below the stock’s current PE and, in this framework, suggests the shares are pricing in more optimistic conditions than the model implies.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1448 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 simple framework on Simply Wall St where you write the story you believe about a company and connect it directly to your assumptions for future revenue, earnings, margins and ultimately a fair value estimate, then track how that stacks up against today’s share price. At its core, a Narrative links three things: the company story, a financial forecast based on that story, and the fair value those numbers imply, all in an easy, guided workflow available on the Community page that millions of investors already use. Narratives update dynamically as new earnings, news or guidance arrive, so your view of when to buy or sell, based on the gap between Fair Value and Price, is always grounded in the latest information. For Netflix, one community member might plug in bullish assumptions similar to the $1,600 price target, while another might lean toward the cautious $750 view, and Narratives lets you see exactly which story and numbers you agree with before you commit capital.

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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