It hasn't been a great evening session for Netflix investors, who have watched their shares sink by -1.7% to a price of $465.74. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Netflix Has Elevated P/B and P/E Ratios:
Netflix, Inc. provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.96 and an average price to book (P/B) ratio of 4.24. In contrast, Netflix has a trailing 12 month P/E ratio of 46.5 and a P/B ratio of 9.22.
Netflix's PEG ratio is 1.6, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company May Be Profitable, but Its Balance Sheet Is Highly Leveraged:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $15,794 | $20,156 | $24,996 | $29,698 | $31,616 | $32,743 |
| Operating Margins | 10% | 13% | 18% | 21% | 18% | 18% |
| Net Margins | 8% | 9% | 11% | 17% | 14% | 14% |
| Net Income (MM) | $1,211 | $1,867 | $2,761 | $5,116 | $4,492 | $4,525 |
| Net Interest Expense (MM) | $420 | $626 | $767 | $766 | $706 | $695 |
| Depreciation & Amort. (MM) | $83 | $104 | $116 | $208 | $337 | $364 |
| Earnings Per Share | $2.68 | $4.13 | $6.08 | $11.24 | $9.95 | $10.02 |
| Diluted Shares (MM) | 451 | 452 | 454 | 455 | 451 | 452 |
| Free Cash Flow (MM) | -$2,854 | -$3,140 | $1,929 | -$132 | $1,619 | $5,677 |
| Capital Expenditures (MM) | $174 | $253 | $498 | $525 | $408 | $379 |
| Net Current Assets (MM) | -$11,042 | -$20,215 | -$18,454 | -$20,666 | -$18,551 | -$16,615 |
| Long Term Debt (MM) | $10,360 | $14,759 | $15,809 | $14,693 | $14,353 | $13,901 |
| Net Debt / EBITDA | 6.21 | 4.69 | 2.29 | 1.78 | 1.9 | 1.38 |
Netflix has growing revenues and increasing reinvestment in the business, exceptional EPS growth, and decent operating margins with a positive growth rate. However, the firm has a highly leveraged balance sheet. Finally, we note that Netflix has irregular cash flows.
