Netflix Inc (NFLX, Financial) has recently seen a daily gain of 1.1% and an impressive 3-month gain of 8.79%. With an Earnings Per Share (EPS) of 14.41, investors and analysts are keen to determine whether the stock is currently overvalued. This analysis delves into the intrinsic valuation of Netflix, guided by the proprietary GF Value, to ascertain if the current market price justifies the company's financial metrics and future growth prospects.
Company Overview
Netflix's business model is straightforward, focusing solely on its streaming service. It boasts the largest subscriber base in the television entertainment sector, with nearly 250 million subscribers globally, excluding China. The company has recently ventured into ad-supported subscription plans, expanding its revenue streams beyond the traditional subscription fees. This strategic move positions Netflix to capitalize on both subscription and advertising markets. As of the latest trading, Netflix's shares are priced at $656.13, with a market capitalization of $282.70 billion, raising questions about its valuation compared to the GF Value of $480.98.
Understanding GF Value
The GF Value is a refined measure of a stock's intrinsic value, calculated using historical trading multiples, an adjustment factor based on past performance and growth, and future business performance projections. For Netflix, the GF Value suggests a fair value of $480.98 per share. Currently trading at $656.13, Netflix appears significantly overvalued, indicating potential for poorer future returns relative to its business growth.
Financial Strength and Stability
Investing in companies with robust financial health reduces the risk of capital loss. Netflix's cash-to-debt ratio stands at 0.5, which is lower than 64.34% of its industry peers. Despite this, Netflix's overall financial strength is deemed fair with a GuruFocus rating of 7 out of 10. This assessment is crucial for investors considering the long-term viability of their investments.
Profitability and Growth Prospects
Netflix has maintained profitability over the past decade, with a strong operating margin of 22.54%, which is superior to 91.82% of competitors in the Media - Diversified industry. The company's average annual revenue growth rate stands at 10.9%, highlighting its ability to expand effectively. These figures are essential for investors looking for companies with sustainable growth trajectories.
Return on Investment Capital Analysis
An effective way to gauge a company's profitability is to compare its return on invested capital (ROIC) with its weighted average cost of capital (WACC). Netflix's ROIC over the past year is 15.23, slightly below its WACC of 15.38, suggesting a narrow margin between the returns on investments and the costs of capital.
Conclusion
In conclusion, while Netflix (NFLX, Financial) demonstrates strong profitability and growth, its current market price significantly exceeds the GF Value, indicating that the stock might be overvalued. Investors should consider this analysis carefully and monitor potential market adjustments or further financial developments from Netflix. For a deeper insight into Netflix's financials, interested parties can view its 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.
