Netflix Stock is at New Lows, But Its FCF Is Strong - Is NFLX Too Cheap?

Netflix Inc. (NFLX) stock is tanking ahead of its Q2 earnings release on Thursday, July 16. It's now down 32% from a peak price on April 16 ($107.79) right before the Q1 earnings release. However, its FCF is strong and expected to remain high. Value investors are circling as NFLX looks too cheap.

NFLX closed at $73.37 on Friday, July 10. That's well below the 6-month prior low of $76.02 on Feb. 26, when Netflix dropped its Warner Bros. bid. It's only slightly over a recent trough of $70.90 on June 25. Has it gone too far?

Nvidia Stock Has Been Flat, But NVDA Price Targets are Higher - Shorting Puts Works

Wheat's Bullish Fundamentals Are Growing—So Why Do Prices Keep Falling?

Some investors may be negative on NFLX, as its market share seems to be eroding. A recent WSJ article (July 9) suggested lower potential customer engagement, including the lowest level of TV viewership at 7.8% since May 2025, according to Nielsen.

But the company is still expected to produce strong revenue and free cash flow (FCF). That was despite lower operating margin guidance in its Q1 earnings release, which disappointed the market.

For example, its Q2 2025 operating margin was 34.1% , but the April 16 shareholder letter showed management forecast just 32.1% for Q2.

So, if management beats the lower Q2 forecast in the July 16 earnings release and its Q3 operating margin forecast is higher than 28.2% (Q3 2025), it's possible NFLX stock could rebound.

However, the market is forgetting that Netflix is still expected to generate strong free cash flow (FCF) over the next 12 months. This is because analysts project higher revenue, and Netflix has consistently generated 20% FCF margins.

For example, Seeking Alpha shows that analysts forecast revenue of $51.39 billion this year. That's up 13.75% from 2025 ($45.18 billion) and +9.6% over the $46.89 billion for the trailing 12 months (TTM), according to Stock Analysis.

In addition, for 2027, analysts are projecting $57.4 billion, giving it a next 12 months (NTM) average of $54.4 billion .

Moreover, over the last 4 quarters, Stock Analysis shows Netflix has generated high TTM FCF margins: 25.37% in Q1, 20.94% in Q4 2025, 20.67% (Q3), 20.39% (Q2). (The Q1 FCF had a one-time $2.8 billion breakup fee from Paramount, so the adjusted FCF margin was 19.4%, as I pointed out in my April 19 Barchart article."

So, the average trailing 12 months (TTM) FCF margin has been 20.345% . Investors can use that to project its NTM FCF.

Here's how. Multiply the NTM revenue forecast by the average TTM FCF margin:

$54.4 billion NTM revenue x 20.345% FCF margin = $11.07 billion FCF

That will be almost $2 billion more than the TTM $9.094 billion (in Q1, after deducting the one-time payment, i.e., $11.894b - $2.8b), or +21.8% more.

In other words, at some point, the market may have to adjust its valuation for NFLX stock.