As of July 18, 2023, Netflix Inc (NFLX, Financial) experienced a 5.5% increase in its stock price, reaching $474.8 per share. With a market cap of $211.1 billion and a GF Value of $643.59, the stock appears to be modestly undervalued according to GuruFocus Value calculation. This valuation is based on historical trading multiples, past business growth, and analyst estimates of future business performance.
Netflix Inc (NFLX, Financial), the world's largest SVOD platform, primarily generates its revenue from subscriptions to its streaming video on demand service. Available in almost every country except China, the platform boasts over 220 million subscribers globally. The firm delivers both original and third-party digital video content across multiple devices, including PCs, internet-connected TVs, tablets, video game consoles, Apple TV, Roku, and Chromecast.
Understanding GF Value
The GF Value is a unique indicator of a stock's intrinsic worth. If a stock's price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it falls significantly below the GF Value Line, its future return will likely be higher. As Netflix's current price is below the GF Value Line, its long-term return is expected to outperform its business growth.
Financial Strength Analysis
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, investors must review a company's financial strength before purchasing shares. A key indicator is the cash-to-debt ratio. Netflix's ratio of 0.54 ranks worse than 64.36% of companies in the Media - Diversified industry, indicating fair financial strength.
Profitability Assessment
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Netflix has been profitable for the past 10 years, with a revenue of $31.9 billion and EPS of $9.3 over the past twelve months. Its operating margin is 16.85%, ranking better than 87.48% of companies in the Media - Diversified industry, indicating strong profitability.
Growth Evaluation
Growth is a crucial factor in a company's valuation. Netflix’s 3-year average revenue growth rate is better than 84.44% of companies in the Media - Diversified industry. Its 3-year average EBITDA growth rate is 19.2%, ranking better than 70.85% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) is another way to assess its profitability. Netflix’s ROIC is 10.76, and its WACC is 13.14, indicating a need for improvement in capital returns.
Conclusion
Overall, Netflix (NFLX, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 70.85% of companies in the Media - Diversified industry. For more information about Netflix stock, check out its 30-Year Financials here.
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