Netflix: A DCA Thesis Built Around Three Buying Zones
Netflix is becoming interesting again, but not because the chart offers a perfect bottom or because the valuation is screamingly cheap at today’s price. The opportunity comes from the combination of a high-quality business, a technical setup that is beginning to improve and a clear plan for deploying capital if the correction continues. Rather than trying to guess the exact low, the idea is to build the position in stages and let the margin of safety determine how aggressive each purchase should be.
The current area around $75–78 is the first zone. The share price is trading close to its 200-session moving average and near the midpoint of the larger move marked on the chart, while the recent decline can reasonably be read as the final leg of an ABC correction. Technical analysis is never enough on its own, but this is the kind of area where the chart stops looking extended and starts becoming investable again. It is not yet a level for maximum conviction, but it is good enough for an initial position.
The fundamental picture supports that approach. Netflix remains one of the strongest businesses in global media, with recurring subscription revenue, real pricing power, a growing advertising business and a cost structure that has become far more efficient over time. The company is no longer simply a subscriber-growth story. Margin expansion, paid sharing, advertising and increasingly strong cash generation have become central parts of the thesis. The supporting valuation work estimates fair value at roughly $115 through a DCF, $113 using EV/Sales and $118 using EV/EBITDA. Those methods are not perfect, but the fact that all three converge in a similar range gives some credibility to the underlying valuation.
For the scenario model, I am using a current basic EPS of $3.16 and a two-year horizon. The bear case assumes 7% annual EPS growth and an 18× multiple, producing a fair value of roughly $65. The base case assumes 12% growth and a 25× multiple, giving a value close to $99. The bull case uses 14.5% growth and a 29× multiple, resulting in approximately $120. Applying probabilities of 25%, 60% and 15% gives a probability-weighted value of about $94 per share. This is more conservative than the $113–118 range from the broader valuation work, which is useful because it avoids building the investment case around the most optimistic assumptions.
At the current price of roughly $77.65, the expected upside is respectable but not extraordinary. The stock is still above the bear-case value, so this is not the point to deploy all the available capital. I would use around 20% of the total intended position in this first zone. The purpose of that purchase is to gain exposure if the 200-day moving average holds and the correction ends here, without creating a position so large that a further decline becomes difficult to manage.
The second zone sits around $62–64. This area lines up with the old daily gap and the lower Fibonacci level marked on the chart. More importantly, it is close to the model’s bear-case value. At that point, the market would already be pricing in slower growth, lower expectations and a meaningful compression in the earnings multiple. Assuming the business remained healthy, the balance between downside and potential upside would be much more attractive than it is today. I would allocate another 35% of the planned capital in this range.
The final zone is around $45–47. This is where the largest purchase would take place, using the remaining 45% of the allocation. At that price, Netflix would be trading well below even the conservative bear-case valuation and at a level that would imply a much more serious deterioration than a normal slowdown in growth. If the decline were being driven by market fear, multiple compression or a broader sell-off, this would be the strongest opportunity in the plan. The valuation would be so compressed that it would be difficult to justify remaining underweight.
