Netflix Stock: “Dirt Cheap” with 70%+ Upside? Analysts Say Buy Now
Netflix Stock Jumps After Famous Investor Bill Ackman Buys In: What You Need to Know
/Netflix%20on%20tv%20with%20remote%20by%20freestocks%20via%20Unsplash.jpg)
Photo by freestocks via Unsplash
The Big News: A Vote of Confidence
Imagine your favorite teacher suddenly saying, "I’m putting my own money into this company because I believe in it." That’s basically what happened with Netflix recently!
On August 13, Netflix shares (NFLX) jumped 5.4% in a single day. Why? Because Bill Ackman—a famous investor who runs Pershing Square Holdings—announced his firm bought a new stake in Netflix.
IMPORTANT POINT
When a well-known, successful investor like Bill Ackman buys a stock, it’s often seen as a "vote of confidence." It signals to other investors: "Hey, smart money thinks this is a good deal right now."
Why Has Netflix Stock Been Struggling?
Before this jump, Netflix stock had taken a beating. Let’s break down why in simple terms:
1. The Stock Fell a Long Way From Its High
- Netflix stock peaked in June 2025
- Since then, it dropped about 42%
- Year-to-date (since January 2026), it’s down roughly 17%
2. Two Main Reasons for the Drop
| Reason | What It Means (ELI5) |
|---|---|
| Slower Growth Expected | Netflix told investors: "Next quarter, we’ll grow revenue ~11.7%." Wall Street wanted more. Investors worried: "Is the party over?" |
| Less Frequent Updates | Starting in 2027, Netflix will share viewer engagement numbers once a year instead of twice. Some people wondered: "Are they hiding something?" (There’s no proof of that, though!) |
3. Tough Comparisons Coming Up
Netflix had an amazing second half of last year. Now they have to compare against those great numbers—making this year’s growth look slower even if the business is still healthy.
Why Bill Ackman (And Others) Still Like Netflix
Despite the worries, Netflix’s fundamentals (the actual business health) look strong. Here’s the bull case in plain English:
5 Reasons to Be Optimistic
-
Still Growing Members & Raising Prices
- More people signing up + ability to raise prices = more revenue
-
Ads Are Becoming a Real Business
- Ad revenue expected to double to $3 billion in 2026
- This is new money on top of subscriptions
-
Smart Spending on Content
- Content costs growing ~10% in 2026
- Revenue growing ~13-14%
- Translation: They’re making more from each dollar spent on shows/movies
-
Buying Back Their Own Shares
- Fewer shares = each share represents a bigger piece of the pie
- Helps earnings per share grow faster
- 2026 Looks Solid
- Management expects $51–51.4 billion in revenue (13-14% growth)
- Driven by: more members + price hikes + ad growth
What About Valuation? Is It Cheap or Expensive?
The Numbers Made Simple
| Metric | What It Means |
|---|---|
| Forward P/E: 20.8x | Investors pay $20.80 for $1 of expected yearly earnings |
| vs. History | Below Netflix’s usual premium valuation |
| vs. Disney (DIS) | Above Disney’s valuation |
| Why the premium? | Huge global subscriber base + pricing power + growing ad business |
IMPORTANT POINT
P/E Ratio (Price-to-Earnings) = Stock Price ÷ Earnings Per Share
Think of it like: "How many years of current profits to pay back my investment?"
Lower = potentially cheaper. But fast growers deserve higher P/Es.
The Bottom Line: If Netflix keeps growing double-digits, expands profit margins, and buys back shares, today’s 20.8x P/E might look like a bargain in hindsight.
How High Could the Stock Go? (Analyst Targets)
Wall Street analysts have a "Moderate Buy" consensus on Netflix. Here’s their scorecard:
| Target Type | Price | Upside from $78.24 (Aug 13 close) |
|---|---|---|
| Average Target | $95.09 | +22% |
| Highest Target | $135 | +73% |
Remember: Price targets are guesses, not promises. But they show professional analysts see more upside than downside.
Summary: The Netflix Story in a Nutshell
| The Bear Case (Worries) | The Bull Case (Optimism) |
|---|---|
| Growth slowing (11.7% Q3 guide) | Still 13-14% full-year 2026 growth |
| Less frequent engagement reports | No evidence engagement is weakening |
| Tough year-over-year comparisons | Ads doubling to $3B revenue |
| Stock down 42% from peak | Content costs growing slower than revenue |
| Aggressive share buybacks | |
| Famous investor (Ackman) just bought in | |
| 20.8x P/E below historical levels | |
| Analysts see 22-73% upside |
The Core Debate: Is Netflix’s growth permanently slowing, or just taking a breather after a huge run? Ackman and the bulls bet on "breather." The stock’s reaction will depend on who’s right.
FAQ: Your Questions Answered
Q1: Who is Bill Ackman, and why does his purchase matter?
A: Bill Ackman is a famous "activist investor" who runs Pershing Square Holdings. He’s known for making big, concentrated bets on companies he thinks are undervalued. When he buys, people pay attention because he has a strong track record and often pushes companies to improve.
Q2: What does "forward P/E of 20.8x" actually mean for me?
A: It means if you buy Netflix today, you’re paying about 21 times what the company is expected to earn per share over the next year. For context: the S&P 500 average is around 20-22x. So Netflix is priced roughly in line with the broad market—despite growing faster than most companies.
Q3: Why would Netflix stop reporting engagement twice a year?
A: Companies sometimes reduce reporting frequency when a metric becomes less volatile or less central to the investment thesis. Netflix says engagement is now stable and predictable. Skeptics worry it’s because growth is slowing. Time will tell!
Q4: How does the ad business help Netflix?
A: It’s a second revenue stream on top of subscriptions. Netflix can show ads to price-sensitive viewers (cheaper tier) while keeping premium ad-free tiers. More viewers + more ad inventory + better targeting = fast-growing revenue with high margins.
Q5: Should I buy Netflix stock now?
A: I can’t give personal financial advice! But here’s how to think about it:
- Consider buying if: You believe in long-term streaming growth, trust management’s execution, and are okay with volatility
- Be cautious if: You need the money soon, hate seeing 20%+ drawdowns, or think competition will crush Netflix’s margins
- Always: Do your own research, consider your risk tolerance, and maybe consult a financial advisor
Final Thought
Netflix is in a transition phase—mature in some markets, still growing in others, building an ad business, and managing content costs carefully. The stock’s drop made it cheaper. Bill Ackman thinks it got too cheap. The next few quarters will show who’s right.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. The author (Amit Singh) had no position in NFLX at publication. Always do your own research before investing.