Hook & thesis
Netflix has been beaten down year-to-date after a run that priced in both content upside and the company's HBO Max acquisition. The stock briefly traded to a 52-week low of $75.01 on 02/23/2026 and has since bounced into the low $80s. That pullback is not a sign the business is broken; it is a tactical entry for investors willing to use a disciplined stop and target. Today's trade plan targets a return-to-mean move back toward $105 while limiting downside risk below the recent structural low.
Why buy? Simply put: the fundamentals still justify paying for growth, the valuation is no longer frothy in EV/EBITDA terms, and near-term headline risk can flip to a catalyst if the Warner Bros. Discovery deal proceeds favorably. The mixture of profitable growth, solid cash flow, and a manageable balance sheet makes a risk-defined long here an actionable trade.
What Netflix does and why the market should care
Netflix is a global entertainment platform that sells subscription and advertising-supported video streaming and increasingly integrates video gaming and other leisure-oriented activities. The company operates through U.S. and international segments and continues to invest in content, global distribution, and advertising monetization.
The market cares for three reasons: subscriber and revenue growth, margin expansion and cash flow generation, and strategic M&A. Recent commentary and filings show revenue growth accelerating (cited at roughly 17.6% year-over-year in recent coverage) and operating margins expanding to attractive levels (reported near 29.5%). Meanwhile Netflix's ad business is scaling rapidly (150% growth in 2025 per recent coverage), which adds a higher-margin monetization lever on top of subscriptions.
Concrete financial snapshot
| Metric | Value |
|---|---|
| Current price | $83.01 |
| Market cap | $349.2B |
| Enterprise value | $334.9B |
| Trailing EPS | $2.60 |
| Implied trailing P/E (current price / EPS) | ~32x |
| EV/EBITDA | 8.88x |
| Free cash flow (last reported) | $9.46B |
| Return on equity | 41.3% |
| Debt / Equity | 0.54 |
| 52-week range | $75.01 - $134.12 |
Those numbers tell a clear story: Netflix is profitable, generates meaningful free cash flow ($9.46B), and carries a conservative net leverage profile. An EV/EBITDA under 9x is not what you would expect for a high-growth media franchise if investors believed growth had evaporated; instead it suggests a pullback in multiple more than an erosion in fundamentals.
Technical and sentiment backdrop
Technically, the stock has traded below its 50-day averages ($86.51 / $86.84) and briefly hit a 52-week low on 02/23/2026. Momentum indicators are neutral to constructive: the 10-day SMA is ~$77.98, RSI sits around 52, and MACD shows a bullish histogram. Short interest is present but modest relative to float and days-to-cover is low, so short squeezes are possible but unlikely to be the dominant driver.
Valuation framing
On a simple earnings basis, Netflix trades near ~32x trailing EPS (using EPS $2.60 and the current price). EV/EBITDA of 8.9x is more revealing: it implies the market is not assigning a super-premium multiple to the company’s cash flow today. Given Netflix's high return on equity (41%) and growing ad revenue, paying mid-to-high single-digit EV/EBITDA for a profitable global streamer looks reasonable compared with more speculative growth names that trade at far richer multiples.
That said, the stock remains expensive on a price-to-sales basis (~7.3x) because of the large market cap and the subscription pricing power built into the model. The question for investors is whether continued revenue/margin improvement and the HBO Max acquisition synergies - if realized - justify a re-rating back toward historical highs. We think that outcome is plausible and worth a risk-defined trade.
Catalysts (what can drive the trade higher)
- Warner Bros. Discovery transaction path - developments around the Netflix-backed bid and the matching period (events in late February 2026) can reduce uncertainty if the deal proceeds to close in 2026 and adds scale/content.
- Quarterly results showing continued revenue acceleration and margin expansion (consensus coming off 2025 momentum where revenue growth was noted at ~17.6% and operating margin near 29.5%).
- Ad business monetization - continued high growth in advertising revenue (2025 growth cited ~150%) would improve profitability and justify a higher multiple.
- Active investor appetite - reported increases from large funds (example: a major hedge fund increased its stake materially) can attract momentum buyers into the stock.
Trade plan (actionable)
Direction: Long
Entry: $83.00
Stop loss: $74.00
Target: $105.00
Horizon: long term (180 trading days). This trade is sized as a tactical long that expects the combination of improving fundamentals and reduced headline uncertainty to push multiples higher over several months. The 180-day horizon gives time for reported quarters, deal developments, and ad revenue traction to play out.
Rationale: entry near $83 captures much of the pullback from the 52-week high, the stop sits just below the recent $75 structural low to avoid noise while protecting capital, and the target $105 reflects a move back toward the middle of the 52-week range and a re-rating toward a healthier multiple as growth re-accelerates and deal risk resolves.
Position sizing and management
This is a medium-risk trade. Limit position size so the account loss at the $74 stop is acceptable (for example, a 2-3% portfolio allocation depending on risk tolerance). Move stops to breakeven if the stock reaches $95 and consider taking partial profits on the way to $105 to lock in gains while keeping exposure to upside.
Risks and counterarguments (what could go wrong)
- Deal uncertainty - the Warner Bros. Discovery bidding process (competing offers surfaced in late February 2026) could force Netflix to increase its bid, raise financing costs, or even see the deal go to a rival suitor. That outcome could pressure the stock or consume capital.
- Regulatory and political pressure - new rules (for example, UK streaming regulation announced 02/24/2026) and political pushback around a high-profile acquisition could increase compliance costs or delay strategic plans.
- Competition and content risk - intensified competition from tech firms and legacy media could pressure pricing power and subscriber growth, which would compress multiples and potentially push the stock down toward the $56-$62 valuation range some analysts suggest if sentiment worsens.
- Valuation compression - even with solid cash flow, sentiment can stay negative and drive lower multiples; the stock has already declined materially year-to-date and another leg down is possible.
- Macro risk - risk-off episodes or a tightening in multiples for growth/tech stocks could pull Netflix lower regardless of company-specific execution.
Counterargument: Some market observers argue that waiting for a deeper pullback to $56-$62 (roughly 18-26% lower than current levels) is prudent because that range represents 18-20x earnings and would provide a safer margin of safety. That is a valid view if you are unwilling to hold through headline noise or if you require a lower multiple. This trade, however, is sized and stopped for those who prefer to buy a high-quality streaming franchise at a controlled price and limit downside with a hard stop.
Conclusion and what would change my mind
Netflix's pullback is an attractive tactical buying opportunity for disciplined investors. The company still generates strong free cash flow ($9.46B), posts high returns on equity (~41%), and operates with reasonable leverage (debt/equity 0.54). EV/EBITDA of 8.9x suggests the market is pricing in meaningful near-term uncertainty but not a permanent impairment of the business model. For these reasons, I recommend entering at $83.00 with a stop at $74.00 and a target of $105.00 over a long-term (180 trading days) horizon, but only as a sized, risk-managed position.
I would change my view if Netflix reports a sustained slowdown in revenue growth for two consecutive quarters, material margin deterioration, or if the Warner Bros. Discovery transaction collapses in a way that meaningfully increases leverage or destroys the expected synergies. Conversely, accelerating ad monetization above current expectations or a clean close of the WBD deal would make me more bullish and could warrant adding to the position.
Key near-term items to watch
- Updates on the Warner Bros. Discovery bidding and the matching period (events in late February 2026 were recent focal points).
- Quarterly results for revenue growth and operating margin progression.
- Ad revenue trajectory and ARPU trends across regions.
- Any regulatory developments in major markets (UK broadcasting rules were recently updated).
Trade summary: Long NFLX at $83.00, stop $74.00, target $105.00. Horizon: long term (180 trading days). Risk level: medium.