Things To Be Wary Of When Buying Netflix Stock

Netflix (NASDAQ:NFLX) stock has been a stellar performer this year, rising by about 25% since early January and trading at about $1,100 per share. Several factors have driven this surge. Netflix’s financial performance has been strong, led by subscriber growth from lower-priced ad-supported plans, a crackdown on password sharing, and higher advertising revenues. In Q1 2025, Netflix’s revenues exceeded estimates, rising 13% to $10.54 billion, while earnings increased 25% to $6.61 per share. The company has also managed to raise prices without facing significant pushback from customers. In late January, the price of its standard plan increased to about $18 a month, while the premium plan rose to about $25 per month. So, is Netflix stock still a  good value?

Image by Napoleon Schwan from Pixabay

We think that the stock looks attractive but volatile, making it a tricky pick to buy at its current price of around $1110. We believe there is some cause for concern with NFLX stock, which makes it attractive but highly sensitive to adverse events, as its current valuation is extremely high.

We arrive at our conclusion by comparing the current valuation of NFLX stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of Netflix along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a very strong operating performance and financial condition, as detailed below. That said, if you seek upside with lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.

How Does Netflix’s Valuation Look vs. The S&P 500?

Going by what you pay per dollar of sales or profit, NFLX stock looks very expensive compared to the broader market.

• Netflix has a price-to-sales (P/S) ratio of 12.3 vs. a figure of 2.8 for the S&P 500
• Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 65.3 compared to 17.6 for S&P 500
• And, it has a price-to-earnings (P/E) ratio of 55.2 vs. the benchmark’s 24.5

How Have Netflix’s Revenues Grown Over Recent Years?

Netflix’s Revenues have grown considerably over recent years.

• Netflix has seen its top line grow at an average rate of 9.6% over the last 3 years (vs. increase of 6.2% for S&P 500)
• Its revenues have grown 15.6% from $35 Bil to $40 Bil in the last 12 months (vs. growth of 5.3% for S&P 500)
• Also, its quarterly revenues grew 16.0% to $11 Bil in the most recent quarter from $9.4 Bil a year ago (vs. 4.9% improvement for S&P 500)

How Profitable Is Netflix?

Netflix’s profit margins are higher than most companies in the Trefis coverage universe.

• Netflix’s Operating Income over the last four quarters was $10 Bil, which represents a high Operating Margin of 26.7% (vs. 13.1% for S&P 500)
• Netflix’s Operating Cash Flow (OCF) over this period was $7.4 Bil, pointing to a moderate OCF Margin of 18.9% (vs. 15.7% for S&P 500)
• For the last four-quarter period, Netflix’s Net Income was $8.7 Bil – indicating a high Net Income Margin of 22.3% (vs. 11.3% for S&P 500)

Does Netflix Look Financially Stable?

Netflix’s balance sheet looks very strong.

• Netflix’s Debt figure was $16 Bil at the end of the most recent quarter, while its market capitalization is $474 Bil (as of 5/12/2025). This implies a very strong Debt-to-Equity Ratio of 3.2% (vs. 21.5% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
• Cash (including cash equivalents) makes up $8.4 Bil of the $52 Bil in Total Assets for Netflix.  This yields a strong Cash-to-Assets Ratio of 17.9% (vs. 15.0% for S&P 500)

How Resilient Is NFLX Stock During A Downturn?

NFLX stock has seen an impact that was slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on NFLX stock? Our dashboard How Low Can Netflix Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.

Inflation Shock (2022)

• NFLX stock fell 75.9% from a high of $691.69 on 17 November 2021 to $166.37 on 11 May 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 20 August 2024
• Since then, the stock has increased to a high of $1,156 on 4 May 2025 and currently trades at around $1110

Covid Pandemic (2020)

• NFLX stock fell 22.9% from a high of $387.78 on 18 February 2020 to $298.84 on 16 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 13 April 2020

Global Financial Crisis (2008)

• NFLX stock fell 55.9% from a high of $5.81 on 17 April 2008 to $2.56 on 27 October 2008, vs. a peak-to-trough decline of 56.8% for the S&P 500
• The stock fully recovered to its pre-Crisis peak by 17 March 2009

Putting All The Pieces Together: What It Means For NFLX Stock

In summary, Netflix’s performance across the parameters detailed above are as follows:

• Growth: Extremely Strong
• Profitability: Strong
• Financial Stability: Extremely Strong
• Downturn Resilience: Neutral
• Overall: Very Strong

Hence, despite its extremely high valuation, the stock appears attractive but volatile, which supports our conclusion that NFLX is a tricky stock to buy.

Not too happy about the volatile nature of NFLX stock? The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.

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