We've been asking ourselves recently if the market has placed a fair valuation on Netflix. Let's dive into some of the fundamental values of this Large-Cap Consumer Discretionary company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing Netflix's Earnings and Assets:
Netflix, Inc. provides entertainment services. The company offers television (TV) series, documentaries, feature films, and 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 20.93 and an average price to book (P/B) ratio of 2.93. In contrast, Netflix has a trailing 12 month P/E ratio of 53.3 and a P/B ratio of 21.34.
Netflix has moved 85.4% over the last year compared to 17.3% for the S&P 500 — a difference of 68.1%. Netflix has a 52 week high of $1341.15 and a 52 week low of $660.8.
Strong Revenue Growth but an Average Current Ratio:
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $20,156 | $24,996 | $29,698 | $31,616 | $33,723 | $39,001 |
| Operating Margins | 13% | 18% | 21% | 18% | 21% | 27% |
| Net Margins | 9% | 11% | 17% | 14% | 16% | 22% |
| Net Income (M) | $1,867 | $2,761 | $5,116 | $4,492 | $5,408 | $8,712 |
| Net Interest Expense (M) | $626 | $767 | $766 | $706 | $700 | $675 |
| Depreciation & Amort. (M) | $104 | $116 | $208 | $337 | $357 | $329 |
| Diluted Shares (M) | 452 | 454 | 455 | 451 | 449 | 439 |
| Earnings Per Share | $4.13 | $6.08 | $11.24 | $9.95 | $12.03 | $19.83 |
| EPS Growth | n/a | 47.22% | 84.87% | -11.48% | 20.9% | 64.84% |
| Avg. Price | $328.87 | $446.83 | $558.22 | $313.83 | $486.88 | $1263.25 |
| P/E Ratio | 77.38 | 71.72 | 48.46 | 31.1 | 38.95 | 62.02 |
| Free Cash Flow (M) | -$3,140 | $1,929 | -$132 | $1,619 | $6,926 | $6,922 |
| CAPEX (M) | $253 | $498 | $525 | $408 | $349 | $440 |
| EV / EBITDA | 59.09 | 45.11 | 41.08 | 24.95 | 29.84 | 51.01 |
| Total Debt (M) | $20,723 | $22,357 | $21,236 | $14,353 | $14,543 | $15,583 |
| Net Debt / EBITDA | 5.8 | 3.01 | 2.38 | 1.54 | 1.02 | 0.72 |
| Current Ratio | 0.9 | 1.25 | 0.95 | 1.17 | 1.12 | 1.22 |
Netflix benefits from rapidly growing revenues and increasing reinvestment in the business, strong operating margins with a positive growth rate, and exceptional EPS growth. The company's financial statements show generally positive cash flows and healthy leverage levels. Furthermore, Netflix has just enough current assets to cover current liabilities, as shown by its current ratio of 1.22.
