Netflix (NFLX): Assessing Valuation After a Sharp Pullback in the Share Price

Netflix Stock Performance In Context

Netflix (NFLX) has quietly slipped about 4% in the past day and roughly 10% over the past week, extending a near 18% pullback this month that is starting to test investors patience.

See our latest analysis for Netflix.

That slide comes after a strong run, with the share price still up modestly year to date while the three year total shareholder return above 200% shows the longer term momentum story remains very much intact.

Given how quickly sentiment can shift around big tech, it is worth scanning other high growth opportunities in high growth tech and AI stocks while Netflix works through this cooling phase.

With the share price now well below consensus targets but growth in revenue and profits still robust, the key question is whether Netflix remains undervalued or if the market is already pricing in its future expansion.

Most Popular Narrative Narrative: 31% Undervalued

With the narrative fair value near $134 per share versus Netflix's $92.71 last close, the storyline backs a meaningful upside if assumptions hold.

Enhanced user experience from a major UI/UX refresh, combined with advanced personalization and recommendation features leveraging generative AI improves member engagement and content discovery, which is likely to increase retention rates and viewing time, leading to higher revenue and better operating margins.

Read the complete narrative.

Curious how much earnings power this assumes, or how rich a future profit multiple it needs to work. Want the exact playbook behind that upside narrative.

Result: Fair Value of $134.44 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, mounting competition and soaring content costs could pressure margins and slow subscriber growth, which could quickly erode the upside implied in this bullish narrative.

Find out about the key risks to this Netflix narrative.

Another Lens On Value

While the narrative fair value points to upside, the price to earnings check sends a cooler signal. Netflix trades on 40.6 times earnings versus an estimated fair ratio of 33.1 times and a 21.8 times industry average, leaving less room for error if growth stumbles.

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own Netflix Narrative

If you see the story differently and want to dig into the numbers yourself, you can build a complete view in minutes. Do it your way.

A good starting point is our analysis highlighting 2 key rewards investors are optimistic about regarding Netflix.

Ready To Act On Your Next Move?

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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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