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Netflix (NFLX) Stock May Be A Bargain On Fresh Price Target News

Simply Wall St · 2d ago

Netflix has seen its stock fall sharply over the past year after a strong multi year run. This puts fresh attention on a simple question for investors who care about fundamentals: Is the current share price still in line with what the company’s cash flows can support, or has sentiment moved ahead of the underlying economics?

  • Over the past 3 years, Netflix shares are up about 89%, which makes the link between that long run and the business’s ability to keep generating strong cash flows an important focal point.
  • Recent news around expanding live content, advertising and content spending may support revenue opportunities but could also influence margins and the timing of future free cash flow.
  • If you'd rather focus on earnings, this one's for you. See what Netflix's 21.8x P/E says about the price.

The issue now is whether Netflix's recent share price, after a steep pullback, is still justified by the cash flows implied in its intrinsic value estimate.

To put Netflix's cash flow story in context, it can help to compare it with other businesses on similar criteria using the 30 high quality undervalued stocks

Does Netflix Look Undervalued on Cash Flow?

The Discounted Cash Flow (DCF) model used here looks at the cash Netflix is expected to generate for shareholders over time. On the latest twelve-month numbers, the group produced around $11.3b of free cash flow, which is already substantial for a media and entertainment platform of its size. Analysts feeding into this model expect that pool of cash to keep growing rather than shrinking, with projected annual free cash flow in the coming years sitting clearly above the current base.

Those healthier projected cash flows, once discounted back using the 2 Stage Free Cash Flow to Equity framework, lead to an estimated intrinsic value that the model suggests is meaningfully above the current share price of $71.38. The recent Wells Fargo downgrade and concerns around softer engagement help explain why the market still prices Netflix more cautiously than the cash flow profile alone might indicate. Find out what Netflix could be worth using our Discounted Cash Flow (DCF) estimate.

The Netflix Narrative: What Would Justify Today's Price?

Simply Wall St Narratives pick up where the Netflix valuation puzzle leaves off and ask a simple question for each scenario: What future path for growth, margins and earnings would need to hold for the stock to be worth materially more or materially less than it trades for today? Each narrative frames Netflix's fair value as a thesis about how the business might develop that you can track over time on the Community page as new information arrives.

Community views on Netflix split between a cash rich premium business that might still have room to rerate and a more cautious read on what current expectations already bake in.

Bull case: 13% undervalued

"The bull case increasingly leans on pricing, advertising, margin expansion and buybacks rather than pure subscriber momentum..."

Discover why this Narrative puts Netflix at 13% undervalued.

Bear case: 17% overvalued

"Escalating content costs and competition threaten profit margins, while regulatory and operational pressures are set to further erode Netflix's long-term earnings potential..."

Explore why this Narrative puts Netflix at 17% overvalued.

One more piece of the Netflix puzzle investors should not skip

Valuation only tells part of the story for Netflix, because separate checks have flagged specific pressure points that could matter a lot to long term holders, and those need their own closer look. Take a closer look at 2 warning signs before settling on a valuation.

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.