Hook & thesis
Shares of Netflix sit within dollars of their 52-week low after a sharp retreat from last summer's highs. The pullback has created an asymmetric trade: the market is pricing a lot of downside into a company that still delivered 16% revenue growth in 2025 and produced more than $9.4 billion in free cash flow. For traders willing to take a measured risk, the combination of solid fundamentals and deeply oversold technicals makes a disciplined long entry attractive.
My trade thesis is simple: buy a tactical position under $81 with a clear stop at $74 and a mid-term (45 trading days) target of $100. That target reflects a reversion toward more normalized multiple expansion from an oversold technical setup, while the stop limits downside should deal uncertainty or competitive pressures accelerate downside momentum.
Business snapshot - what Netflix does and why the market should care
Netflix is a global streaming entertainment platform that sells subscription access to movies, series, and an expanding set of adjacent entertainment products (including video games and ad-supported tiers). The business is driven by two levers investors watch closely: subscriber growth (scale and engagement) and monetization per user (pricing, ad revenue, and retention). The company reported roughly 325 million subscribers and grew revenue about 16% in 2025 to approximately $45 billion, demonstrating continued demand for premium streaming content and ad-supported offerings.
Why those fundamentals matter today
- High-quality cash generation: Netflix produced roughly $9.46 billion in free cash flow, giving it flexibility to invest in content, international expansion, and strategic M&A.
- Profitability metrics are solid: return on equity sits above 40% and return on assets near 20%, signaling the business converts content investment into attractive returns.
- Balance sheet and leverage appear manageable: debt-to-equity is about 0.54, and enterprise value sits near $344 billion versus a market cap just under $339 billion.
What the market is worried about
The recent decline reflects two main investor concerns: the competitive landscape (YouTube, Amazon, Apple and AI-driven platforms vying for attention) and headline risk around Netflix's $82.7 billion all-cash bid for Warner Bros. Discovery. The deal introduces uncertainty around potential breakup fees and execution risk. Those items are real and justify some multiple compression — but the current price appears to embed more downside than the fundamentals suggest if Netflix continues to grow revenue and expand margins.
Valuation framing
At the current price near $80 the company is trading with a market cap of roughly $338.6 billion. Key valuation metrics:
| Metric | Value |
|---|---|
| P/E | ~30.8 |
| EV/EBITDA | ~9.1 |
| Price / Free Cash Flow | ~35.8 |
| Price / Sales | ~7.5 |
Those numbers show a mixed picture. EV/EBITDA around 9.1 implies the market is applying a more modest multiple to operating results than at cyclical highs, while P/FCF remains elevated — investors are still paying for high profitability and growth. Relative to its 52-week high of $134.12 (06/30/2025), the stock has priced in significant disappointment; the key question is whether that disappointment is already reflected in today's multiples or if further weakness is likely.
Technical setup
Technically, the setup is compelling for a tactical long. RSI is deeply oversold at ~22.7 and short-term moving averages (9/21/50) sit well above current price levels, signaling momentum is stretched to the downside. MACD shows bearish momentum but a small histogram suggests momentum could flatten ahead of a relief bounce. Short volume has been elevated recently, increasing the chances of episodic squeezes if sentiment shifts.
Trade plan (actionable)
- Direction: Long
- Entry: $80.00
- Stop loss: $74.00 (hard stop)
- Target: $100.00
- Horizon: mid term (45 trading days) — the trade is intended to capture a rebound off deeply oversold conditions and potential multiple re-rating as headline uncertainty resolves.
Rationale: Entry near $80 leaves room to the 52-week low ($79.23 on 02/04/2026) while giving upside to $100 that reflects a recovery toward more normalized sentiment and partial multiple expansion. The $74 stop limits downside in the event the deal talks or subscriber trends materially disappoint.
Catalysts that could push NFLX toward $100
- Positive quarterly results or subscriber prints showing continued ARPU growth and ad revenue acceleration.
- Clarification or favorable resolution of the Warner Bros. Discovery bid process, removing a major headline risk and the specter of a breakup fee.
- Evidence of improved engagement metrics from new product features (ad-targeting, generative-AI powered personalization) boosting ad monetization.
- Broader market relief in the mega-cap tech space and rotation back into growth names, which historically compresses the discount on high-margin subscription businesses.
Risks and counterarguments
- Competition and engagement risk: Meta, Amazon, and short-form platforms continue to capture attention. If view hours and engagement growth stall materially, Netflix's ability to raise prices or monetize users could be impaired.
- Deal execution and headline risk: The $82.7B bid for Warner Bros. Discovery creates several moving parts. A costly breakup fee or an expensive acquisition would weigh on the balance sheet and shareholder returns (reports have flagged a potential $5B breakup fee).
- Valuation complacency: While EV/EBITDA looks reasonable, price-to-free-cash-flow near mid-30s suggests patience is required; if growth slows, multiples could reset further.
- Regional and regulatory headwinds: Shifts toward digital sovereignty in Europe or tougher ad regulations could limit monetization upside internationally.
- Counterargument: A reasonable opposing view is that the market is correctly skeptical — Netflix's business faces secular competition and the current P/FCF still implies robust execution. If management missteps on content investment or ad strategy, the downside could be larger than the trade anticipates.
Position sizing and risk control (practical note)
This trade is tactical. Limit allocation to a size where a stop at $74 would be tolerable relative to your portfolio risk — for many traders that will mean a small single-digit percent allocation. Because short interest and short volume have been elevated recently, volatility can spike; keep position size disciplined and use the stop without hesitation if triggered.
What would change my mind
I would reconsider this long if any of the following occur:
- Subscriber growth or guidance turns negative on the next report, indicating loss of product-market fit in key geographies.
- The Warner Bros. Discovery bid moves into a protracted legal or financing morass with clear cash implications beyond current estimates.
- Material deterioration in ad revenue trends or ARPU that indicates ad monetization is not scaling as hoped.
Conclusion - stance and execution summary
Netflix presents an actionable swing trade: buy at $80.00, target $100.00 within approximately 45 trading days, and protect the position with a stop at $74.00. The setup pairs durable fundamentals (solid revenue growth, strong free cash flow, attractive returns) with an oversold technical backdrop that has historically produced snap-backs in high-quality growth names. The trade is not without risk — headlines around the WBD bid and ongoing competitive pressures could produce further weakness — so keep position sizing conservative and adhere strictly to the stop.
If Netflix prints continued subscriber and ARPU strength and headline noise around the deal fades, $100 looks achievable as sentiment normalizes. If the company instead disappoints on either operational execution or deal economics, the stop protects capital and allows re-evaluation for a larger, longer-term investment depending on the facts on the ground.