Netflix Inc (NFLX, Financial) has recently seen a daily gain of 2.98%, with a notable 3-month gain of 23.14%, reflecting a positive trajectory in the stock market. Investors are taking note of its impressive Earnings Per Share (EPS) of 10.02. But the critical question remains: Is the stock Fairly Valued? This article aims to delve into the valuation analysis of Netflix, offering insights that could guide potential investment decisions.
Company Introduction
Netflix Inc (NFLX, Financial) stands out in the streaming service industry with a robust subscriber base of nearly 250 million globally, excluding China. The company's business model is straightforward, focusing on on-demand access to a diverse range of entertainment, from episodic television and movies to documentaries. With the introduction of ad-supported subscription plans, Netflix is diversifying its revenue streams beyond subscription fees. A key aspect of understanding the company's worth is comparing its current stock price of $486.12 with the GF Value of $446.1, a measure of its estimated fair value.
Summarize GF Value
The GF Value is a unique valuation metric that calculates the intrinsic value of a stock like Netflix (NFLX, Financial). It is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and projected future business performance. When a stock's price aligns closely with the GF Value Line, it is considered fairly valued, which is currently the case with Netflix. With a market cap of $212.80 billion, the stock's long-term return is anticipated to mirror the company's business growth rate.
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Financial Strength
Investors must examine a company's financial strength to avoid potential capital loss. Netflix's cash-to-debt ratio of 0.55 places it in a less favorable position than 61.17% of its industry peers. However, with a financial strength rating of 7 out of 10, the company maintains a fair balance sheet.
Profitability and Growth
A company's profitability is a vital indicator of its investment potential. Netflix has consistently maintained profitability over the past decade, with a remarkable operating margin of 18.35%, outperforming 89.07% of companies in its industry. Its profitability score is a perfect 10 out of 10, indicating robust financial health.
Furthermore, growth is a critical factor in valuation. Netflix's 3-year average revenue growth rate surpasses 84.33% of its industry competitors, and its EBITDA growth rate of 19.2% is also commendable. These growth metrics suggest a promising outlook for the company's valuation.
ROIC vs WACC
An analysis of Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) can shed light on a company's profitability relative to its capital costs. Netflix's ROIC of 11.87 falls short of its WACC of 14.21, indicating a potential area for improvement in capital efficiency.
Conclusion
In conclusion, Netflix (NFLX, Financial) is estimated to be fairly valued. The company exhibits a solid financial condition and impressive profitability. Its growth outperforms a significant portion of the industry, positioning it well for future valuation. For a more detailed financial analysis, investors can review Netflix'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.
