NASDAQ:NFLX, a growth stock which is not overvalued.

Last update: Dec 13, 2024

NETFLIX INC (NASDAQ:NFLX) was identified as an affordable growth stock by our stock screener. NASDAQ:NFLX is showing great growth, but also scores well on profitability, solvency and liquidity. At the same time it seems to be priced reasonably. We'll explore this a bit deeper below.

ChartMill's Evaluation of Growth

ChartMill assigns a proprietary Growth Rating to each stock. The score is computed by evaluating various growth aspects, like EPS and revenue growth. We take into account the history as well as the estimated future numbers. NASDAQ:NFLX was assigned a score of 8 for growth:

The Earnings Per Share has grown by an impressive 76.35% over the past year.
Measured over the past years, NFLX shows a very strong growth in Earnings Per Share. The EPS has been growing by 34.98% on average per year.
The Revenue has grown by 14.80% in the past year. This is quite good.
Measured over the past years, NFLX shows a quite strong growth in Revenue. The Revenue has been growing by 16.38% on average per year.
The Earnings Per Share is expected to grow by 24.29% on average over the next years. This is a very strong growth
Based on estimates for the next years, NFLX will show a quite strong growth in Revenue. The Revenue will grow by 10.95% on average per year.

Assessing Valuation Metrics for NASDAQ:NFLX

ChartMill assigns a proprietary Valuation Rating to each stock. The score is computed by evaluating various valuation aspects, like price to earnings and free cash flow, both absolutely as relative to the market and industry. NASDAQ:NFLX was assigned a score of 5 for valuation:

Based on the Price/Earnings ratio, NFLX is valued a bit cheaper than the industry average as 66.20% of the companies are valued more expensively.
Based on the Price/Forward Earnings ratio, NFLX is valued a bit cheaper than 67.61% of the companies in the same industry.
NFLX's Enterprise Value to EBITDA ratio is a bit cheaper when compared to the industry. NFLX is cheaper than 64.79% of the companies in the same industry.
Based on the Price/Free Cash Flow ratio, NFLX is valued a bit cheaper than the industry average as 64.79% of the companies are valued more expensively.
NFLX's low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.
The excellent profitability rating of NFLX may justify a higher PE ratio.
A more expensive valuation may be justified as NFLX's earnings are expected to grow with 33.94% in the coming years.

A Closer Look at Health for NASDAQ:NFLX

A critical element of ChartMill's stock evaluation is the Health Rating, which spans from 0 to 10. This rating considers multiple health factors, including liquidity and solvency, both in absolute terms and relative to industry peers. NASDAQ:NFLX has received a 8 out of 10:

NFLX has an Altman-Z score of 10.18. This indicates that NFLX is financially healthy and has little risk of bankruptcy at the moment.
NFLX's Altman-Z score of 10.18 is amongst the best of the industry. NFLX outperforms 97.18% of its industry peers.
NFLX has a debt to FCF ratio of 2.24. This is a good value and a sign of high solvency as NFLX would need 2.24 years to pay back of all of its debts.
The Debt to FCF ratio of NFLX (2.24) is better than 80.28% of its industry peers.
Although NFLX does not score too well on debt/equity it has very limited outstanding debt, which is well covered by the FCF. We will not put too much weight on the debt/equity number as it may be because of low equity, which could be a consequence of a share buyback program for instance. This needs to be investigated.
NFLX does not score too well on the current and quick ratio evaluation. However, as it has excellent solvency and profitability, these ratios do not necessarly indicate liquidity issues and need to be evaluated against the specifics of the business.

What does the Profitability looks like for NASDAQ:NFLX

ChartMill assigns a Profitability Rating to every stock. This score ranges from 0 to 10 and evaluates the different profitability ratios and margins, both absolutely, but also relative to the industry peers. NASDAQ:NFLX scores a 8 out of 10:

NFLX has a Return On Assets of 14.88%. This is amongst the best in the industry. NFLX outperforms 94.37% of its industry peers.
NFLX has a better Return On Equity (34.25%) than 91.55% of its industry peers.
NFLX has a Return On Invested Capital of 19.19%. This is amongst the best in the industry. NFLX outperforms 95.77% of its industry peers.
The 3 year average ROIC (13.36%) for NFLX is below the current ROIC(19.19%), indicating increased profibility in the last year.
Looking at the Profit Margin, with a value of 20.70%, NFLX belongs to the top of the industry, outperforming 92.96% of the companies in the same industry.
NFLX's Profit Margin has improved in the last couple of years.
The Operating Margin of NFLX (25.65%) is better than 94.37% of its industry peers.
In the last couple of years the Operating Margin of NFLX has grown nicely.
NFLX's Gross Margin has improved in the last couple of years.

Every day, new Affordable Growth stocks can be found on ChartMill in our Affordable Growth screener.

Check the latest full fundamental report of NFLX for a complete fundamental analysis.

Keep in mind

This article should in no way be interpreted as advice. The article is based on the observed metrics at the time of writing, but you should always make your own analysis and trade or invest at your own responsibility.