• Wondering if Netflix at US$80.34 is a bargain or a value trap? This article walks through what the current price really implies.
• The stock is down 2.2% over the past week, 8.2% over the past month, 11.7% year to date, and 33.7% over the last year. This comes even though the 3 and 5 year returns stand at 86.0% and 60.4% respectively.
• Recent coverage around Netflix has focused on how its stock price has pulled back sharply over the past year after a strong multi year run. This has raised questions about what investors are now pricing in and sets the scene for a closer look at what the current valuation actually reflects.
• Simply Wall St's valuation model currently gives Netflix a valuation score of 4 out of 6. The rest of this article will compare different valuation approaches before finishing with a way to put those numbers in a broader context.

Approach 1: Netflix Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes projected future cash flows and discounts them back to what they could be worth today, based on the risk and timing of those cash flows.

For Netflix, the model uses a 2 Stage Free Cash Flow to Equity approach and starts with last twelve month Free Cash Flow of about US$12.0b. Analysts provide explicit estimates for several years, and Simply Wall St then extends those projections further out. By 2030, the projected Free Cash Flow is US$22.7b, with interim annual projections between 2026 and 2035 ranging from roughly US$13.2b to US$30.8b before discounting.

When all of those projected cash flows are discounted back to today, the model arrives at an estimated intrinsic value of US$95.20 per share. Compared with the current share price of US$80.34, the DCF implies the stock trades at about a 15.6% discount. On this set of cash flow assumptions, this indicates that Netflix is undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Netflix is undervalued by 15.6%. Track this in your watchlist or portfolio, or discover 44 more high quality undervalued stocks.

Approach 2: Netflix Price vs Earnings

For a profitable company like Netflix, the P/E ratio is a useful way to think about what you are paying for each dollar of current earnings. Higher growth potential and lower perceived risk usually support a higher, or more generous, P/E ratio. In contrast, slower growth or higher uncertainty tend to justify a lower, or more cautious, multiple.

Netflix currently trades on a P/E of 25.3x. That sits in line with the Entertainment industry average of about 25.3x and below the broader peer group average of 53.7x, so the stock is not at the high end of the range compared with many peers.

Simply Wall St’s Fair Ratio for Netflix is 30.6x. This is a proprietary estimate of what a “normal” P/E could be for the company given factors such as its earnings growth profile, industry, profit margins, market cap and specific risks. Because it is tailored to Netflix, this Fair Ratio is more informative than a simple comparison with industry or peer averages that do not account for these differences.

With the Fair Ratio of 30.6x sitting above the current P/E of 25.3x, the preferred multiple view suggests the stock is undervalued on earnings.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Netflix Narrative

Earlier it was mentioned that there is an even better way to understand valuation. This is where Narratives come in, giving you a simple way to attach a story about Netflix to the numbers behind your own fair value, revenue, earnings and margin assumptions, and then compare that fair value with today’s price to decide whether the stock looks attractive or expensive.

On Simply Wall St’s Community page, Narratives are an accessible tool used by millions of investors. They let you set out a view such as Netflix as a “customer acquisition machine” focused on subscriber growth, or as a company that keeps a cleaner balance sheet and invests heavily in ad tech and infrastructure, and link that story directly to a forecast and a resulting fair value.

Because Narratives on the platform update automatically when new data, earnings or news arrive, you can see in real time how a more cautious view with a fair value around US$79.39 and a more optimistic view around US$138.56 or even US$151.40 respond to fresh information, then decide which Netflix Narrative best fits your own expectations.

For Netflix, here are previews of two leading Netflix Narratives to make comparison easier:

Fair value in this narrative: US$94.66

Implied discount to this fair value at US$80.34: about 15.1% undervalued

Revenue growth assumption: 9.76%

• This bullish view focuses on subscriber growth as the key driver, linking past subscriber, revenue and operating margin figures very closely over the last decade.
• The author highlights product features such as cancel anytime, the ad-supported tier, live sport, foreign language content and the recommendation engine as tools that support customer acquisition and engagement.
• Overall, Netflix is framed as a customer acquisition machine, with the narrative fair value of US$94.66 sitting above the recent share price.

Fair value in this narrative: US$79.39

Implied premium to this fair value at US$80.34: about 1.2% overvalued

Revenue growth assumption: 9.18%

• This more cautious view weighs several valuation methods, including DCF, EPS growth and a range of historical multiples, and then blends them into a single fair value estimate.
• The author acknowledges solid profitability metrics and an estimated cost of capital of 9.45%, but also points to strong competition and a narrow moat rating as key risks.
• On balance, the narrative concludes that Netflix looks slightly overvalued around US$80, with the blended fair value of US$79.39 used as the reference point.

When comparing these narratives, the fair values span a relatively tight range around the recent share price. This makes it useful to decide which story about subscribers, margins and competitive risk aligns better with your own expectations.

If you want a broader set of viewpoints and valuation ranges before deciding which story fits you best, have a look at the full spread of community views across Netflix Narratives See what the community is saying about Netflix

Do you think there's more to the story for Netflix? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.