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. 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 FB, Amazon.com Inc AMZN and Alphabet Inc 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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