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New: Instantly spot drawdowns, dips, insider moves, and breakout themes across Maps and Screener.
Netflix continues to show stellar growth in its advertising business.
Investors are underestimating the company's long-term margin expansion.
The stock is trading at an attractive forward earnings multiple.
Netflix (NASDAQ: NFLX) continues to deliver solid revenue and profit growth, but its stock price fell following the release of its fourth-quarter earnings report last week. The shares trade down almost 38% from their 52-week high.
Nothing has changed Netflix's long-term growth trajectory. The company continues to show the potential for strong earnings growth in the coming years. Advertising growth will play a key role, and the market seems to be underestimating it.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
Image source: Netflix.
Netflix delivered a solid 17% year-over-year revenue increase for the fourth quarter, and advertising is contributing more to that total. Management said its ad revenue grew 2.5x in 2025 compared to 2024.
Stocks follow earnings over time, which makes the recent ad growth meaningful for long-term investors. More ad revenue could increase revenue per member and pad the company's margins. Netflix guided for an operating margin of 31.5% in 2026, up from its trailing 12-month margin of 29.6%.
With the stock down, investors are getting better value. The stock is trading at a forward price-to-earnings multiple of 27. This appears attractive, given analysts' expectations of the company's earnings growing by more than 20% per year over the next four years. Assuming the stock continues to trade at the same valuation, that's enough growth for Netflix investors to double their money in four years.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
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