A truly phenomenal stock that is receiving a lot of speculation, Netflix currently produces very little cash flow but has a market cap of close to $20bn. From the company’s perspective, it makes sense to use such a high valuation to raise new capital and put it to work or to at least buy some treasuries. From a conservative investor’s perspective, this valuation does not make much sense. However, this is what makes the market such an interesting place. Overshooting and undershooting is more the rule rather than the exception. To us, Netflix appears to be an extreme example of overoptimism.
Netflix – NFLX Intrinsic Value Chart:
On the chart above, an intrinsic value of the company is graphed against the stock price. Intrinsic value above the stock price usually points to undervaluation of the company shares. Intrinsic value below the stock price points to overvaluation of the company shares.