The S&P 500 (^GSPC -0.48%) index is hovering near a record high, but there are reasons for investors to be cautious given its lofty valuation. That’s especially true considering that oil prices have soared and broader inflation remains elevated, both factors that are increasing the odds that the Federal Reserve will hike interest rates in the coming months. The S&P’s Shiller Cyclically Adjusted Price-to-Earnings (CAPE) ratio is now about 41. That makes this the second-most-expensive stock market in history — and the only time stocks were more highly valued relative to earnings was near the peak of the dot-com bubble in late 1999 and early 2000.
If the S&P 500 suffers a broad sell-off in the coming months, investors might have an opportunity to buy many high-quality individual stocks at a meaningful discount to today’s prices. Netflix (NFLX -0.96%) will almost certainly be one of them, and while it would be more tempting after a correction, I think it’s attractively valued even at its current price. Here’s why investors should keep the streaming giant on their watch lists.
Image source: Getty Images.
Advertising has become a powerful growth engine for Netflix
Netflix operates the world’s largest streaming service for movies and television shows. With over 325 million paying subscribers, it towers over its nearest competitor, Amazon Prime, which has an estimated 200 million members. The company stays ahead of its rivals by maintaining one of the industry’s highest content budgets and by offering multiple subscription tiers to cater to consumers of all income levels.
Netflix made a major change to its business model in 2022 when it launched its first advertising-supported subscription tier. That option is currently priced at $8.99 per month in the U.S., less than half the price of its standard and premium tiers, which run $19.99 and $26.99 per month, respectively. Ad-tier subscribers can become more valuable to Netflix over time because the company will be able to charge businesses more for advertising slots as the ad tier’s membership base grows. Those ad revenues compensate for the lower up-front subscription fees.
Ad slots are especially valuable during live programming because businesses will pay a premium to get their products in front of large, highly engaged audiences. Therefore, Netflix is investing heavily in sports content, inking deals with the National Football League, Major League Baseball, World Wrestling Entertainment, and more.
Today’s Change
(-0.96%) $-0.74
Current Price
$76.03
Key Data Points
Market Cap
Day’s Range
$75.87 – $76.72
52wk Range
$65.08 – $125.34
Volume
12.7K
Avg Vol
41.3M
Gross Margin
49.53%
During the first three months of 2026, Netflix’s ad-supported tier accounted for 60% of all new sign-ups in countries where it’s available. During the same period, the number of advertisers working with the company soared by 70% year over year to 4,000. Simply put, the ad tier is proving extremely successful on both the consumer and business sides.
According to management’s most recent guidance (issued in July), Netflix expects to generate between $51 billion and $51.4 billion in total revenue in 2026, which would be an increase of around 13% from 2025. Revenue from selling advertising slots is forecast to account for just $3 billion of that total, up from last year’s $1.5 billion. Simply put, advertising has become one of Netflix’s primary growth engines.
Netflix stock could be an absolute bargain if the broader market crashes
Netflix generated earnings of $3.18 per share over the last four quarters, placing its stock at a price-to-earnings (P/E) ratio of just 24.6 (as of the market close on Sept. 4). That is a steep discount to its five-year average P/E ratio of 39.7.
NFLX PE Ratio data by YCharts.
Moreover, Netflix is trading at a much cheaper valuation than the Nasdaq-100, which has a P/E ratio of 34.3, so it looks heavily undervalued compared to a basket of America’s top technology stocks.
I think Netflix’s current valuation presents investors with an enticing opportunity now, but it will be an even more attractive buy if the stock declines amid a broader market correction.
That is especially true considering that Netflix has captured only 7% of what the company sees as a $670 billion global opportunity across streaming subscriptions, advertising, gaming, and more, according to Chief Financial Officer Spencer Neumann. From that perspective, there is still plenty of room for the company to grow.
