Netflix Inc (NFLX)

Conclusion

Netflix Inc (NFLX.US) provides entertainment services worldwide, offering TV series, films, games and live programming streamed to members on internet-connected devices. On 2026-11-09 the shares were priced at 63.95 USD, giving a market capitalisation of 266.3 billion USD.

The verdict is undervalued. Today's multiples sit well below their own ten-year medians: the P/E is 18.0 against a median of 66.0, and EV/EBITDA is 8.5 against a median of 13.2. The fair value band runs from 69.97 to 104.96 USD with a midpoint of 87.46 USD, a margin of safety of 36.8% at the current price. The discounted cash flow gives 42.35 USD per share, below the price, while the fair value from historical multiples is 132.58 USD. The reverse DCF implies growth of 16.2% a year, against revenue growth of 12.6% a year over five years and free cash flow per share growth of 38.7% a year over the same period. The price therefore assumes faster growth than revenue has delivered, but less than per-share cash flow has delivered.

The strongest supports are the return on invested capital of 44.3% against a weighted cost of capital of 12.5%, the Altman Z-score of 8.65, and free cash flow conversion of 76.0% on a trailing twelve-month basis. The weakest numbers are the quick ratio of 0.84, the downward revisions to next-year estimates (8 down and 1 up in the last 30 days), and the discounted cash flow value of 42.35 USD, which sits below the current price. If these weaken further, the case for undervaluation depends more heavily on the multiples and the historical fair value.

Financial health

The colour for financial strength is green, held up by the Altman Z-score of 8.65, net debt to EBITDA of 0.22 and interest coverage of 21.7, all assessed as good. The current ratio of 1.07 is neutral, and the quick ratio of 0.84 sits below 1. Debt to equity is 0.52. The Altman model was designed for manufacturers, so its zone (safe) should be read with that in mind. Insolvency risk: low, about 0.13% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31. The balance sheet is strong on leverage and coverage measures, with liquidity the only area that deserves attention.

Earnings quality

The colour for earnings quality is green. Piotroski scores 7 of 9, and the share count has fallen at a compound rate of 0.9% over five years, which points to buybacks. Free cash flow conversion is 76.0% on a trailing twelve-month basis and 71.4% over five years. The accrual ratio is 1.5%. Stock-based compensation is 1.1% of revenue, and free cash flow after it is 10.68 billion USD. The Beneish M-score is not available. Over the last eight quarters the company beat earnings expectations six times and missed twice, with an average surprise of 0.8%. Estimate revisions are mixed: the current-year figure is flat over 90 days, with 16 upward and 12 downward revisions in 30 days, while next-year estimates fell 1.2% over 90 days, with 1 upward and 8 downward revisions.

Profitability

The colour for profitability is green. The gross margin is 50.7% against a ten-year median of 39.1%, the operating margin is 31.3% against 18.1%, and the net margin is 29.7% against 12.6%. Operating margin has been stable, with a stability measure of 0.46. Return on invested capital is 44.3% against a weighted cost of capital of 12.5%, and the reported difference is 31.8 percentage points. The five-year median of return on invested capital is 22.6%. Return on equity of 50.4% should be read with care. The DuPont split shows a net margin of 24.3%, asset turnover of 0.81 and an equity multiplier of 2.09, so leverage contributes to the high return on equity, though not decisively.

Growth

The colour for growth is green. Revenue has compounded at 12.6% over three years, 12.6% over five years and 20.9% over ten years. Earnings per share have compounded at 36.4% over three years, 33.0% over five years and 56.8% over ten years. Free cash flow per share grew 82.5% a year over three years and 38.7% over five. Revenue has grown in all ten of the last ten years. Next-year earnings per share growth is estimated at 5.6%, which is well below the recent historical pace.

Valuation

The colour for valuation is green, based on the verdict and its margin of safety of 36.8%. Against their ten-year medians, the P/E is 18.0 against 66.0, a premium of -72.7%; EV/EBITDA is 8.5 against 13.2, -35.3%; the price to sales ratio is 5.4 against 8.0, -33.0%; and the price to book ratio is 9.1 against 18.8, -51.8%. The price to free cash flow is 23.7 against a five-year median of 61.7, -61.5%. The discounted cash flow value is 42.35 USD per share, using a discount rate of 12.9%, and the terminal value makes up 43.9% of it. The fair value band is 69.97 to 104.96 USD, with a midpoint of 87.46 USD. The fair value from historical multiples is 132.58 USD. These are estimates built on fixed assumptions, not price targets. The company pays no dividend.

Risks

A quick ratio of 0.84 means liquid assets alone do not cover current liabilities, so a sharp deterioration in cash generation would tighten the balance sheet. Downward revisions to next-year estimates could mean earnings expectations are falling further, and the next-year growth estimate of 5.6% leaves less room for error. The discounted cash flow value of 42.35 USD sits below the current price, so the undervaluation verdict rests on the multiples and the fair value band rather than on the cash flow model alone. The share's beta of 1.61 implies larger price swings than the market. Limits of this analysis: there is no debt maturity schedule, no revenue by segment, and the Beneish M-score is not available.