Netflix (NFLX) stock has been in a relatively sharp downtrend with negative returns of 41% in the last 52-weeks. Let’s be clear that it’s not a case of a broken business model. Earnings have grown and cash flows remain healthy.
However, there are multiple concerns that have impacted NFLX stock. The foremost being growth deceleration. To put things into perspective, Netflix has guided for revenue growth of 11.7% in Q3 FY26, the slowest in three years.
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Recently, Wells Fargo downgraded Netflix and cited another concern: engagement trends. Analyst Steven Cahall pointed out that the company’s viewership was down 8% year over year in the first half of 2026. Additionally, Cahall expects the “second-half 2026 content slate to weigh on margins.”
Without a doubt, these concerns are legitimate, and the impact has been seen on NFLX stock. However, it’s also worth noting that the stock trades at a forward price-earnings ratio of 20.96. Valuations are on the attractive side, and a contrarian bet on Netflix with gradual exposure seems like a good idea.
About Netflix Stock
Headquartered in Los Gatos, California, Netflix is one of the world’s leading entertainment services offering TV series, films, games, and live programming across a wide variety of genres and languages.
Netflix has a single operating segment and derives revenue from monthly membership fees for services related to streaming content to members. The company has a range of pricing plans, including its ad-supported subscription plan.
For FY25, Netflix reported 44.2% of revenue from the United States and Canada, 32.1% from Europe, the Middle East, and Africa, and 23.7% from Latin America and Asia-Pacific. Amidst intense competition, the company’s core strategy is global growth within the “parameters of its operating margin target.”
While Netflix has reported double-digit top-line growth, there are concerns related to competition, possible growth deceleration, and the company’s margin profile. As a result, NFLX stock has declined by 24.2% in the last six months.
www.barchart.com Positives Amidst the Gloom
While growth concerns have translated into a deep correction for NFLX stock, there are reasons to remain optimistic. As of June, Netflix reported a cash buffer of $9.1 billion. Further, for Q2 FY26, the company’s free cash flow was $1.5 billion. This implies an annualized FCF potential of $6 billion. Netflix therefore has strong financial flexibility to invest in content creation. It’s worth mentioning here that the Paramount Skydance (PSKY) merger with Warner Bros. Discovery implies significant leverage for the combined entity. This can potentially restrict the flexibility to invest in content creation, and Netflix is likely to gain an upper hand.
Another point to note is that for Q2, the company’s growth in the U.S. and Canada was 10% year-on-year. However, revenue growth was 21% and 16% for LATAM and APAC, respectively. From the perspective of addressable markets, these regions provide ample scope for broadening the subscription base and therefore boosting cash flows. To put things into perspective, Netflix CFO Spencer Neumann believes that the company is “under 45% penetrated into addressable households around the world.”
At the same time, the company expects ads revenue of $3 billion for 2026. Healthy revenue growth is likely to continue from the ad business as the ad-supported plan is launched in more countries in 2027.
What Do Analysts Say About NFLX Stock?
While growth is a concern, valuations seem attractive after a meaningful correction. Based on 49 analysts with coverage, NFLX stock has a consensus “Moderate Buy” rating. While 31 analysts have a “Strong Buy” rating for the stock, four have a “Moderate Buy,” 13 have a “Hold,” and one analyst has a “Strong Sell” rating.
The mean price target of $95.23 represents potential upside of 32.7% from current levels. Further, the most bullish price target of $135 suggests that NFLX stock could climb as much as 88% from here.
www.barchart.com On the date of publication, Faisal Humayun Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.