Is Netflix Stock's 7.3X PS Still Worth it? Buy, Sell, or Hold?
Netflix NFLX shares are overvalued, as suggested by a Value Score of C. The NFLXNFLX-- stock is trading at a forward 12-month price/sales (P/S) of 7.3X compared with the broader Zacks Consumer Discretionary sector’s 2.31X.
Netflix shares are trading at a premium compared with peers, including Disney DIS, Paramount Skydance PSKY and Amazon AMZN, shares of which are trading at a P/S multiple of 1.65, 0.34 and 2.69, respectively.
NFLX Stock’s Valuation
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Is NetflixNFLX-- worth buying at current prices? Let’s dig deep to find out.
NFLX’s Financial Discipline Bodes Well for Investors
Year to date, Netflix shares have dropped 3%, outperforming the broader sector’s fall of 7.9%. Shares of AmazonAMZN--, DisneyDIS-- and Paramount SkydancePSKY-- have declined 10.2%, 15.2% and 31.5%, respectively, over the same time frame. Since dropping its deal to acquire Warner Bros. Discovery’s studio and streaming assets, Netflix shares have appreciated 7.5%, reflecting positive investor sentiment.
NFLX Stock’s Price Performance
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NFLX’s decision not to stretch its balance sheet to match Paramount Skydance's revised all-cash bid of $31 per share reflects financial discipline on the former’s behalf. As of Dec. 31, 2025, Netflix’s cash balance was $9.03 billion as compared with total debt of $14.52 billion. The company had streaming content obligations of $24.04 billion as of Dec. 31, 2025, with $11.53 billion due within the next 12 months.
Netflix continues to generate strong cash flow that boosts its liquidity position. Net cash generated from operating activities in 2025 was $10.1 billion compared with $7.4 billion in 2024. Non-GAAP free cash flow was $9.5 billion in 2025 compared with $6.9 billion in 2024. For 2026, the company now expects to generate free cash flow of roughly $11 billion, which assumes a cash content spend to content amortization ratio of roughly 1.1.
The company is now expected to focus on reinvesting in the business and then return excess cash to shareholders through repurchases. Netflix had paused share buybacks to fund the Warner Bros. acquisition. In the fourth quarter of 2025, Netflix bought back 18.9 million shares for $2.1 billion, leaving $8 billion under its existing share repurchase authorization.
Strong Engagement & Ad Business to Revive NFLX’s Prospects
Netflix now expects more healthy growth on an organic basis for 2026. The company reported 16% revenue growth in 2025, with advertising sales growing 2.5 times to $1.5 billion. Netflix expects this advertising business to roughly double again in 2026 to $3 billion. Netflix benefits from a healthy engagement level. In the second half of 2025, viewing hours increased 2% year over year, driven by a 9% rise in viewing of branded originals. With over 325 million paid memberships, Netflix is now serving an audience approaching one billion people globally.
The company continued to enhance its advertising technology capabilities. In 2025, Netflix began testing new AI tools to help advertisers create custom ads based on its intellectual property, with plans to build on this progress in 2026. Netflix also introduced automated workflows for ad concepts and used advanced AI models to streamline campaign planning, significantly speeding up these processes.
Expansion into newer content categories, including video podcasts and live events (World Baseball Classic in Japan), is expected to boost top-line growth. For 2026, Netflix now expects revenues between $50.7 billion and $51.7 billion. This represents 12% to 14% year-over-year growth (or 11% to 13% foreign exchange neutral growth). However, the growth rate is lower than the rate reported in 2025. The company is targeting a 2026 operating margin of 31.5%, up from 29.5% in 2025.
2026 Earnings Estimate Revisions Positive for NFLX Stock
The Zacks Consensus Estimate for 2026 earnings is pegged at $3.14 per share, up a couple of cents over the past 30 days, indicating 24.1% year-over-year growth. The consensus mark for 2026 revenues is pegged at $51.23 billion, indicating 13.4% year-over-year growth.
The consensus mark for first-quarter 2026 earnings is pegged at 76 cents per share, unchanged over the past 30 days, suggesting 15.2% growth year over year. The Zacks Consensus Estimate for first-quarter 2026 revenues is pegged at $12.17 billion, implying 15.4% year-over-year growth.
NFLX Stock: Buy, Sell or Hold?
Netflix’s revenue growth is slowing, as reflected by current guidance. Content spending is deliberately front-loaded in the first half of 2026, which the company says will pressure operating income early in the year before recovering in the second half. These factors, along with Netflix’s premium valuation, are concerning for investors in the near term.
Netflix currently has a Zacks Rank #3 (Hold), suggesting that investors should wait for a more favorable point to accumulate the stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Amazon.com, Inc. (AMZN): Free Stock Analysis Report
Netflix, Inc. (NFLX): Free Stock Analysis Report
The Walt Disney Company (DIS): Free Stock Analysis Report
Paramount Skydance Corporation (PSKY): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
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