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Jim Cramer Spots a Striking Gap in Netflix Stock - Here's Why It Matters For Your Portfolio

An upgrade and a record buyback may signal a turning point

By Damilola Esebame, CFEI® , Edited by Laura Hohenstein

Updated Oct. 1, 2026

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CNBC's Jim Cramer expressed surprise that Netflix (NASDAQ:NFLX) trades at roughly 18 times projected 2027 earnings after shedding 42% of its value over the past year, a valuation he called too cheap to overlook.

The gap between the price decline and operating results matters to your financial fitness, especially when a major market voice and a bank flag it simultaneously. Deutsche Bank's upgrade from Hold to Buy added institutional weight to Cramer's thesis.

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Cramer called 18 times 2027 earnings too cheap after a 42% decline

Cramer told viewers he was "shocked" to see Netflix trading at roughly 18 times projected 2027 earnings, 24/7 Wall St. confirmed. The stock closed at $70.57 on September 29, down from approximately $121 a year earlier, compressing a double-digit revenue grower into a multiple reserved for slow-growth retailers.

The trailing price-to-earnings ratio sits near 26, but Cramer focused on the forward multiple because it incorporates the ad-tier ramp and international expansion, a distinction for investors evaluating Netflix on earnings trajectory.

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Deutsche Bank upgraded Netflix from Hold to Buy on penetration upside

Deutsche Bank moved its rating from Hold to Buy, arguing that the market focuses on the wrong metric when evaluating Netflix, 24/7 Wall St. documented. The bank contended that time spent viewing is less relevant than the addressable household opportunity, estimating that Netflix has penetrated less than 45% of its total addressable global households.

A sub-45% penetration rate implies more than half the potential subscriber base remains untapped, and Deutsche Bank positioned that gap as the primary catalyst for earnings growth rather than any single quarter's viewership figures.

Q2 revenue rose 13% to $12.56 billion but missed the consensus by $10 million

Netflix reported second-quarter revenue of $12.56 billion, a 13% increase from a year earlier, the company's shareholder letter confirmed. Earnings per share (EPS) came in at $0.80, up 11.1% from $0.72 in the same quarter of 2025 and slightly above the $0.79 analyst consensus.

The stock fell more than 8% in after-hours trading despite the EPS beat because revenue missed the $12.57 billion consensus estimate by roughly $10 million, Zacks confirmed. Management narrowed full-year revenue guidance to $51.0 billion to $51.4 billion from $50.7 billion to $51.7 billion, trimming the upside investors had priced in.

Operating margin of 33.4% generated $4.19 billion in quarterly profit

Operating income reached $4.19 billion in the second quarter on a 33.4% margin, with net income totaling $3.40 billion, the SEC filing showed. Management guided for a 33.2% operating margin in the third quarter, above the 31.5% full-year target, signaling confidence that cost discipline will hold through the back half of the year.

Content amortization is projected to grow roughly 10% in 2026, but full-year free cash flow guidance of approximately $12.5 billion remained intact, enough to cover both the content pipeline and shareholder returns from a balance sheet carrying $9.1 billion in cash against $14.3 billion in total debt.

The record $4.7 billion buyback signals management conviction in the stock

Netflix repurchased $4.7 billion of its own shares during the second quarter, the largest quarterly buyback in the company's history, the shareholder letter confirmed. The remaining authorization of $27.1 billion provides capacity for more than five additional quarters at the same pace.

Management is buying back its own equity at a 42% discount from a year ago, signaling confidence that the current valuation underestimates the ad-tier and international growth ahead. Record-pace repurchases at depressed prices carry informational value for your position because companies rarely accelerate buybacks when they expect further deterioration.

Ad revenue is on pace to double to roughly $3 billion in 2026

Netflix's advertising business is expected to generate approximately $3 billion in revenue during 2026, roughly double the prior year's total, 24/7 Wall St. confirmed. The ad-supported tier serves as both a subscriber acquisition tool and a margin-accretive revenue stream the subscription-only model lacked.

The shareholder letter noted that Netflix applied generative artificial intelligence (AI) across roughly 300 titles in 2026, the SEC filing documented. A doubling ad business paired with AI-driven efficiency creates two growth levers absent during the stock's prior peak, a combination that could justify a re-rating above 18 times forward earnings.

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Regional growth ranged from 10% to 21% across all four segments

Netflix reported double-digit revenue growth across all four geographic segments in the second quarter, the shareholder letter showed. Regional performance breaks down as follows.

Latin America led at 21% year-over-year growth, reaching $1.58 billion in quarterly revenue.
Asia-Pacific grew 16% to $1.51 billion.
Europe, the Middle East, and Africa (EMEA) rose 14% to $4.03 billion.
United States and Canada, the most mature market, grew 10% to $5.43 billion.

Bottom line

Netflix trades at 18 times projected 2027 earnings after a 42% decline that compressed a company still growing revenue at 13% and generating approximately $12.5 billion in annual free cash flow. Cramer called the valuation too cheap, Deutsche Bank upgraded to Buy, and management responded with the largest quarterly buyback in the company's history.

The ad-tier doubling to $3 billion and sub-45% global household penetration provide earnings levers the current multiple does not reflect. The Q3 earnings report will clarify whether the revenue miss was a one-quarter shortfall or the start of a trend, and that distinction could reshape your decision to start investing at a level Netflix has not traded at in years.

This article is for informational purposes only and should not be considered investment advice.

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