Netflix Drops 12%: How Expensive Is The Stock Compared To The Rest Of FANG?

For the second straight quarter, the market was not impressed by Netflix, Inc. (NASDAQ: NFLX)’s subscriber growth numbers and the stock sold off by more than 12 percent. Netflix is now more than 37 percent down from its all-time highs, but has the decline made it a value compared to its FANG rivals Facebook Inc (NASDAQ: FB), Amazon.com Inc (NASDAQ: AMZN) and Alphabet Inc (NASDAQ: GOOGL)? Here’s a look at the numbers.

The PEG ratio is an indication of how much value the market is giving to a company’s earnings when growth is factored in. This is how the FANG stocks stack up in terms of five-year projected PEG:

• Facebook: 0.9
• Amazon: 2.78
• Netflix: 9.2
• Alphabet: 1.3

Clearly, based simply on income and growth, Netflix’s stock is far from cheap.

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Another common valuation metric used to evaluate stocks is the price-to-free-cash-flow ratio, or P/FCF. Free cash flow is the cash that a company generates after capital expenditures are subtracted out.

• Facebook: 51.4
• Amazon: 55.67
• Netflix: N/A
• Alphabet: 29.1

Netflix is the only FANG company that hasn’t generated positive cash flow over the past four quarters, another bad sign.

Finally, profit margin is a metric that is often used to assess the efficiency of a business and the growth potential of a stock. Profit margins are the percentage of each dollar in revenue that ends up as net income for a company.

• Facebook: 23.7 percent
• Amazon: 1.03 percent
• Netflix: 1.7 percent
• Alphabet: 21.8 percent

Here Netflix isn't the lowest man on the totem pole, but its profits are only a fraction of what Facebook and Google are achieving.

It’s been a tough fall for Netflix shareholders so far in 2016 after the stock was the top performer in the entire S&P 500 in 2015. However, in order for Netflix shares to change their trajectory, the company is going to have to deliver better subscriber growth numbers and/or find ways to improve the metrics above.

Disclosure: the author holds no position in the stocks mentioned.

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