Netflix Inc (NFLX, Financial) has experienced a slight downturn with a daily loss of -3.92%, yet it maintains a 3-month gain of 1.91%. With an Earnings Per Share (EPS) of 14.41, investors are faced with a critical question: is the stock modestly overvalued? This article delves into the valuation analysis of Netflix, providing insights that are crucial for informed investment decisions.
Company Overview
Netflix Inc (NFLX, Financial) commands a significant presence in the streaming service industry, boasting nearly 250 million subscribers globally. The company's business model, which has traditionally shunned live programming in favor of on-demand content, has recently expanded to include ad-supported subscription plans. This strategic move diversifies Netflix's revenue streams, previously reliant almost entirely on subscription fees. With a current stock price of $555.12 and a market cap of $239.20 billion, juxtaposed against a GF Value of $473.84, a closer examination of Netflix's intrinsic value is warranted.
Understanding the GF Value
The GF Value is a proprietary measure that assesses the intrinsic value of a stock. It is computed by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock's price significantly exceeds the GF Value, it is likely overvalued, and its future return could be disappointing. Conversely, a price below the GF Value suggests a potentially higher future return. Currently, Netflix (NFLX, Financial) appears modestly overvalued, indicating that its long-term return may not align with the company's business growth.
Financial Strength Analysis
Investors must scrutinize a company's financial strength to avoid the high risk of permanent capital loss. Key indicators such as the cash-to-debt ratio, which for Netflix stands at 0.5, provide insight into the company's financial robustness. Despite ranking lower than 64.84% of peers in the Media - Diversified industry, Netflix's overall financial strength is deemed fair, with a score of 7 out of 10.
Profitability and Growth Prospects
Netflix's profitability, a crucial indicator of less risky investments, has remained consistent over the past decade. With a strong operating margin of 22.54%, Netflix outperforms 90.16% of its industry counterparts. Moreover, the company's revenue growth rate surpasses 70.32% of the Media - Diversified industry, while its EBITDA growth rate is more favorable than 57.32% of the industry, signifying a robust growth trajectory.
ROIC vs. WACC: Measuring Value Creation
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another method to assess a company's profitability. When ROIC exceeds WACC, it indicates value creation for shareholders. Netflix's ROIC of 15.23 is marginally higher than its WACC of 14.97, suggesting the company's effective capital utilization.
Conclusion
In conclusion, Netflix (NFLX, Financial) appears modestly overvalued, with fair financial health and strong profitability indicators. Its growth stands competitive within the industry. For a deeper understanding of Netflix's financials, investors are encouraged to review the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
