Netflix stock may have lost its plot, but its basic story remains intact. It trades at a forward P/E ratio of 18.9x, near the bottom of the 2022 bear market (less than 15x), but the stock is cheaper while the underlying business has improved.
highlights
Valuation: 18.9x future earnings, less than 15x at 2022 bottom. Advertising growth: expected to be around $3 billion this year, potentially expanding to $10 billion by 2030. Optional settings: Stance still return of more than 1.5% in 25 days (more than 20% annualized) with strangles covered with defined risk.
Investment case
when Netflix Value investors haven’t quite arrived, as they stop emphasizing subscribers and start focusing on revenue, margins and free cash flow, leaving growth investors and legacy media like Disney (less than 13x) looking cheap on paper. But Netflix is a much better business.
Monetization Engine: With up to 325 million paid subscribers, Netflix offers connected TV advertisers the cleanest audience at scale. The default ad tier is expected to generate $10 billion in ad revenue by 2030. Capital discipline and AI: Management is aggressively buying back stock rather than overpaying for traditional studio assets. Generative AI, on the other hand, is a net positive. Production, dubbing, and localization costs are reduced, directly increasing profits for companies whose biggest expense is content amortization. Engagement: Live sports, glasses, and AI-driven personalization directly target viewing time flattening to protect pricing power.
Netflix, since the beginning of the year
Today’s highly profitable, cash-generating Netflix is priced at 18.9x, just four turns above its worst moment in public history. That makes selling volatility much more attractive than buying a stock outright.
The Trade: August 65/78/88 “Covered Strangulation”
If Netflix costs about $70 and has 25 calendar days until August expiry:
Sell the August 65 put and the August 78 call. Buy the August 88 call (upside tail hedge). Net Credit: $1.10 (up to 1.5% yield for 25 days or >20% APR).
Risk profile:
Earnings range: $63.90 to $79.10 (lower value ~9%, upper value ~13% in brackets). Upside risk: limited to 10 points by August 88 call. Downside Risk: If allocated below $65, the effective entry would be $63.90 (approximately 17x forward earnings), an attractive entry price near the 2022 valuation low.
