Netflix ($NFLX) Stock Analysis: Fundamentals vs. Chart Signals

Hi and welcome Trader

Today I want to cover Netflixs fundamentals and of course my chart analysis.

Because I'm not super firm with fundamentals, I often check what other professionals say. For example, I highly respect the "Patient Investor" on YouTube.

So, I used Googles Gemini to transcribe and analyze his video for Netflix ($NFLX) and created a the following summary. So anything about the fundamentals belongs to "Patient Investor", not to me:

Based on the analysis of Netflix's financial and operational data, here are the primary reasons it is currently considered a strong buying opportunity:

1. Significant Valuation Correction

• Price Adjustment: The stock has experienced a major correction, dropping 33% from its all-time high and nearly 30% in the last six months.

• Fair Valuation: At approximately $89 per share, the stock is trading within the range of its calculated fair value of $87.

• Multiple Contraction: The P/E ratio has compressed from a high of 60x to approximately 37x trailing earnings and 29x forward earnings, making the entry point more attractive.

2. Strong Financial Performance

• Profitability Transformation: Netflix has evolved from a low-margin business into a highly efficient one, currently maintaining a 24% net income margin.

• Consistent Earnings Growth: The company is maintaining high growth rates, with earnings per share expected to grow by 27% in 2026 and 20% in 2027.

• Operational Efficiency: Marketing costs remain low at only 7% of revenue, while half of the total revenue is converted directly into gross profit.

3. Revenue Diversification and Retention

• Ad Tier Growth: The advertising business is expanding rapidly, supported by a strategic partnership with Amazon that increases ad reach and maintains premium pricing.

• Live Event Strategy: The integration of live sports, such as WWE and boxing matches, creates a recurring reason for users to stay subscribed, effectively reducing the "churn" associated with one-off movie releases.

• Massive Scale: With over 190 million monthly active viewers, Netflix possesses a global scale that provides a significant competitive advantage over other streaming players.

4. Market Pricing of Risks

• Priced-in Acquisitions: The market has already factored in the risks of large acquisitions (like Warner Brothers Discovery) by removing $200 billion from Netflix's market cap, limiting further downside risk from these deals.

Well, that's a lot to chew :-)

But it makes sense to me and I understand it clearly. That's why I like the Patient Investors analysis so much. And he's always super enthusiastic. A real pro how he is analyzing the numbers.

Now let's see what the chart says:

I created this chart analysis of Netflix a couple of weeks ago on the long-term chart. And I posted it on TradingView too. However, we can see that when the price failed to reach WL2, it fell back and cracked WL1. Following that, there was a textbook retest of that level. From this failure at WL1, price dropped to its current position at the U-MLH.

So, the red arrows stem from my prior analysis. Price has behaved according to the textbook, following Alan Andrews’ Pitchfork framework to a T. Consequently, PTG1 was reached.

However, a few questions have arisen that make me hesitant to buy Netflix immediately. We are currently at the U-MLH, and here is the crux of the matter: we may still be overstretched. If the price falls back into the fork, there is a very high probability of a further decline toward the centerline, which would sit between $62 and $70.

There is no need for FOMO simply because the price seems cheap or because two analysis methods align. We can afford to wait for further information. If the price stabilizes above the U-MLH, we could initiate a position with 1/3 of the total stake. As the price advances further north, we can add more capital to this winning trade.

Conversely, if we see a crack of the U-MLH, we should wait for the price to reach the centerline. In that scenario, we could even consider a temporary short down to that level.

Now we have not only a long opportunity at hand, but also a potential short trade.

As I said, NO FOMO Boys & Girls ;-)

With that I wish you a happy and profitable new week.

Emilio