Simple Concepts Research Group

Netflix (NASDAQ: NFLX) Is In Deep Discount Territory

by | Jun 23, 2022 | 52 Week Lows

netflix nflx stock valuation

Netflix (NFLX) Company Overview & Stock Price Forecast

This article provides a brief analysis and stock rating for Netflix (NFLX) including an updated stock price target. Additional data on the company’s earnings yield, price/earnings ratio, return on invested capital and YTD performance are discussed as well.

Netflix Fundamentals

NFLX Stock Rating

Stock Price Target: $409.88

In the section below, we discuss the earnings yield, P/E, return on invested capital and YTD performance for Netflix in comparison to the Entertainment industry and the S&P 500.

Netflix is a Mega Cap company with a Market Cap of $75B.

How are investors using Netflix earnings yield to assess the company?

Netflix (NFLX)_ Earnings Yield in Comparison to the Entertainment Industry, S&P 500 and 10 Year Treasury Rate

The earnings yield is used to show the percentage of a company’s earnings per share. Investors typically use earnings yield to determine which assets are underpriced or overpriced relative to other variables, like sector, industry or bond yields. Simply put, the earnings yield of a company can be used to assess how expensive a company is in relation to the earnings that are generated. When valuing companies, the SIS Research Group does not utilize the inverse P/E ratio to calculate the earnings yield. Instead, we use an adjusted earning yield calculation to capture variation amongst companies (i.e. debt and tax rates).

The current earnings yield for Netflix is 21.93%, in comparison to 5.22% for the S&P 500 and 3.31% for the 10-year treasury bond. The median earnings yield for the Entertainment industry is 3.17%.

What does Netflix Price-to-Earnings Ratio (P/E) tell investors about the company?

Netflix (NFLX)_ Price-to-Earnings, Price-to-Sales and Price-to-Book Value in Comparison to the Entertainment Industry and the S&P 500

The price-to-earnings ratio (P/E) is a relatively popular metric used by investors and analysts for valuing a company’s stock. The P/E ratio can be used to show how a stock’s valuation compares to other companies and the total market. Investors use the P/E ratio to determine what the market is willing to pay today based on a company’s past or future earnings. A high P/E ratio could mean that a stock’s price is too high relative to earnings, which could be a signal that a stock is currently overvalued. In turn, a low P/E ratio could indicate that a company’s current stock price is low relative to earnings. 

Netflix is currently trading at a P/E of 15.51. The P/E for the Entertainment industry is 43.04 and the P/E for the S&P 500 is 19.15.

What is the current Price-to-Sales Ratio (P/S) for Netflix?

The Price-to-Sales Ratio (P/S) looks at a company’s market cap and revenue to determine valuation. The P/S ratio is calculated by taking a company’s market cap and dividing by the total sales or revenue. The P/S ratio gives an idea of how much the market values every dollar of a company’s sales and can be effective in valuing unprofitable growth stocks or companies that are currently undergoing special situations or challenges. A lower the P/S ratio can be an indicator of good value.

Netflix is currently trading at a P/S of 2.62. The P/S for the Entertainment industry is 5.85 and the P/S for the S&P 500 is 2.42.

How does Netflix Price-to-BookRatio (P/B) compare to the Entertainment industry?

Price-to-book value (P/B) is the ratio of the market value of a company’s shares divided by its book value of equity (the value of it’s assets on the books). The book value is the difference between the book value of assets and liabilities. Typically, investors use the P/B ratio to assess if a stock is valued properly (a value of one means that the stock price is trading in line with the book value of the company). A company with a high P/B ratio could mean the stock price is overvalued as well as the converse.

Netflix P/B ratio is 4.78. The P/B for the Entertainment industry is 5.13 and the P/B for the S&P 500 is 3.76.

How attractive is Netflix Return on Invested Capital (ROIC) to investors?

Netflix (NFLX)_ Return on Invested Capital in Comparison to the Entertainment Industry and the S&P 500

Investors use the return on invested capital (ROIC) to assess how efficient a company is at turning capital into profits. The ROIC is the amount of money a company makes on it’s investments that is above the average cost of debt and equity.

Investors can use the ROIC to provide context for metrics like the (P/E) ratio. For instance, when used in isolation a low P/E ratio could suggest a company is oversold but the decline could be because a company is no longer generating value for shareholders. Conversely, companies that consistently generate high rates of ROIC can plausibly trade at a premium compared to other stocks, even if their P/E ratios are high.

Netflix ROIC is currently 15.61% in comparison to 4.27% for the Entertainment industry and 9.10% for the S&P 500.

Netflix (NFLX)_ Price Target & 52-Week Price Range

How has NFLX stock performed over the past year? What is the current analyst price target?

Over the past 52 weeks, Netflix has traded between the range of $162.71 and $700.99.

The current Analyst Price Target for Netflix is $409.88.

What is Netflix YOY Performance in comparison to its industry and the total market?

The YOY performance for Netflix is -65.61%. The Entertainment industry has a YTD performance of -46.71% in comparison to the YTD S&P 500 performance of -9.64%.

Netflix (NFLX)_ YOY Performance in Comparison to the Entertainment Industry and the S&P 500

Recent Financial Results (Q1, 2022)

  • EPS of $3.53, a 5.9% decline year over year (YOY)
  • 221.6 million streaming memberships
  • Company anticipates revenue of $8.1B, marking an improvement of 9.7% YOY
  • Company anticipates a diluted EPS of $3.00 and global streaming paid memberships of 219.6M, a 5.0% gain YOY

Stock Price Target: $409.88

Company Overview

NFLX Stock Rating

Netflix, Inc. provides entertainment services. It offers TV series, documentaries, feature films, and mobile games across various genres and languages. The company provides members the ability to receive streaming content through a host of internet-connected devices, including TVs, digital video players, television set-top boxes, and mobile devices. It also provides DVDs-by-mail membership services in the United States. The company has approximately 222 million paid members in 190 countries. Netflix, Inc. was incorporated in 1997 and is headquartered in Los Gatos, California.

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This material is provided for informational purposes only and is not financial advice. The information contained herein should not solely be used for the formation of an investment decision, whether you are a long term or short term investor.