Netflix Stock Is Cheap and It Has More Than 70% Upside Potential Here

Netflix (NFLX) shares closed 5.4% higher on Aug. 13 after Bill Ackman’s Pershing Square Holdings (PSHZF) disclosed a new stake in the streaming giant. The move added a vote of confidence at a time when NFLX stock is trading well below its peak.

The investment case is straightforward: Netflix has experienced a sharp valuation reset, but its underlying growth and profitability outlook remain strong.

Shares have fallen roughly 42% from their June 2025 peak; this has caused the stock’s forward price-to-earnings (P/E) multiple to contract.

Pershing Square’s investment thesis centers on Netflix's potential to sustain double-digit revenue growth while keeping content expenses below the pace of sales growth. If that operating leverage continues, expanding margins could provide a meaningful boost to earnings. Combined with Netflix’s aggressive share-repurchase program, Pershing Square expects Netflix’s earnings to compound at close to 20% annually.

Why NFLX Stock Pulled Back

NFLX stock is down about 17% year-to-date (YTD). Moreover, the recent weakness is due to two primary reasons: an expected moderation in the growth rate and a change in its engagement reporting practices.

Netflix’s management is projecting 11.7% year-over-year (YoY) revenue growth in Q3, below Wall Street expectations. The guidance has raised concerns that the company’s recent pace of revenue and earnings expansion may begin to moderate, especially amid heightened competition in the streaming market. Investors are assessing whether the platform can maintain strong engagement levels and continue expanding its user base at the same pace.

Further, Netflix faces a more demanding comparison period in the second half of the year. The company will be comparing its results against a particularly strong performance in the prior-year period, creating tougher YoY comparisons. As a result, even continued underlying growth could translate into slower reported growth rates.

Investor sentiment also weakened after Netflix announced a planned change to its engagement reporting practices. Starting in 2027, the company intends to publish engagement data annually rather than twice a year. The decision has prompted speculation that engagement growth may be losing momentum, although there is currently no evidence to support that interpretation.

What’s Ahead for Netflix?

Despite the recent weakness in Netflix’s share price, the company’s fundamentals remain solid. It is well positioned to deliver strong revenue and earnings led by continued membership expansion, pricing power, advertising monetization, and improving operating leverage.

For 2026, management expects revenue of approximately $51 billion to $51.4 billion, implying YoY growth of roughly 13%–14%. This outlook is primarily driven by membership growth and pricing, with advertising serving as an additional catalyst. Netflix expects advertising revenue to double to $3 billion, highlighting the increasing contribution of this business to the overall revenue mix.

Another important consideration is Netflix’s ability to grow revenue faster than content costs, which cushions its margins. In 2026, its content expense is projected to increase by 10%. While this is above the 8% average growth rate recorded over the past five years, it remains well below the revenue growth forecast. Moreover, it comes at a time when Netflix is expanding into new entertainment offerings.

Overall, Netflix’s solid content supports subscriber retention, reduces churn, and strengthens the company’s ability to raise prices. Its growing subscription revenue, disciplined content spending, and increasing advertising monetization suggest solid earnings growth ahead.

Here’s What the Valuation Indicates

NFLX stock’s valuation appears reasonable. Netflix currently trades at 20.8x forward earnings, below the premium multiples it has historically commanded. Although this valuation is still above that of Disney, Netflix’s large global subscriber base, recurring pricing power, and an advertising business that is becoming an increasingly important source of incremental revenue warrant a premium.

If Netflix can maintain double-digit sales growth, expand margins, and continue reducing its share count, the current earnings multiple could prove too conservative, supporting upside in the stock.

How High Could NFLX Stock Rise?

Wall Street analysts remain cautiously bullish on NFLX, with the stock carrying a “Moderate Buy” consensus rating. The average analyst price target of $95.09 represents approximately 22% upside from the stock’s closing price of $78.24 on Aug. 13.

Meanwhile, the highest price target of $135 implies approximately 73% upside over the next 12 months.