Netflix may be trading near some of its cheapest valuation levels in years, even as the streaming giant’s business fundamentals have strengthened considerably since its last downturn, according to options trader Mike Khouw.
The stock is currently valued at 18.9 times forward earnings, a multiple that places it uncomfortably close to the sub-15 times ratio it hit during the 2022 bear market. What makes the current situation noteworthy, Khouw noted, is that Netflix’s business quality has markedly improved since that earlier trough.
Growth Investors Left, Value Investors Haven’t Arrived
The valuation compression stems partly from Netflix’s strategic pivot away from highlighting subscriber additions toward emphasizing revenue growth, operating margins, and free cash flow generation. That shift prompted many growth-oriented investors to move on, Khouw explained, while value-focused investors have been slow to embrace the stock because legacy media competitors like Disney trade at even lower multiples below 13 times forward earnings.
The comparison to traditional media, however, masks a fundamental difference in business quality. Netflix operates a subscription model with high margins and strong cash generation, while legacy players are still navigating the costly transition from linear television to streaming while managing declining legacy assets.
A Case for Selling Volatility
Given the disconnect between Netflix’s improved business profile and its depressed valuation, Khouw sees selling options volatility as more attractive than simply buying shares outright. With the stock trading around the $70 level and approximately 25 calendar days remaining until August expiration, options strategies that capitalize on time decay may offer better risk-adjusted returns than directional equity positions.
The thesis rests on the idea that paying 18.9 times earnings for a higher-margin, cash-generative Netflix represents only about four turns above the company’s valuation at what Khouw described as “the worst moment in its public history.” That narrow premium suggests limited downside from current levels, particularly for strategies that benefit from stability rather than requiring significant upside movement.
The Fundamental Picture
Netflix’s evolution into a mature, cash-generating business has been accompanied by improved operating leverage. The company has demonstrated pricing power across its subscription tiers while continuing to invest in content that drives engagement. Free cash flow generation has become increasingly robust, allowing Netflix to fund content spending, potential buybacks, and balance sheet management without the cash burn that characterized its earlier growth phase.
The market’s current valuation implies skepticism about Netflix’s ability to sustain growth or maintain competitive positioning against both traditional media companies launching streaming services and newer entrants. Yet the business metrics tell a different story, one of a company that has successfully navigated its transition from disruptor to incumbent while maintaining financial discipline.
For investors considering exposure to Netflix, the gap between valuation and fundamentals presents different opportunities depending on risk tolerance and time horizon. While value-oriented buyers may still find legacy media multiples more compelling on a surface level, the quality differential favors Netflix’s business model. Meanwhile, options traders focused on implied volatility relative to realized volatility may find the current setup particularly attractive for premium-selling strategies.
Source: www.cnbc.com — https://www.cnbc.com/2026/07/27/netflix-woes-setting-up-for-a-hollywood-ending-says-trader-mike-khouw.html
This article is for informational purposes only and does not constitute financial, investment, tax, or legal advice. Do your own research and consult a licensed professional before making financial decisions.
