Netflix Inc. (NASDAQ:NFLX)

The Price to Operating Profit (P/OP) ratio exhibits significant fluctuations over the observed period. Initially, the ratio is exceptionally high, decreasing substantially before experiencing periods of both increases and decreases. A general trend towards stabilization, albeit at a relatively elevated level, appears to emerge in more recent years.

Early Period (2006-2009)

The P/OP ratio begins at a very high value of 466.86, declining sharply to 23.89, 21.14, and 17.24 over the subsequent three years. This initial decrease suggests a potential correction following an earlier period of high valuation relative to operating profitability, or a substantial increase in operating profit. The ratio remains relatively stable between 17.24 and 21.14 during this timeframe.

Volatility and Increase (2010-2017)

A substantial increase is observed in 2011, with the P/OP ratio reaching 43.86. This is followed by a decrease to 18.26 in 2012, then a dramatic spike to 184.25 in 2013. The ratio then moderates, fluctuating between 66.68 and 161.49 over the next four years. This period is characterized by considerable volatility, indicating a dynamic relationship between share price and operating profit.

Recent Trends (2018-2026)

From 2018 onwards, the P/OP ratio demonstrates a decreasing trend, moving from 147.26 to 89.46, 57.83, and 52.02. A slight increase occurs in 2021 to 27.71, followed by a rise to 35.50 in 2023 and 39.91 in 2024. The most recent value, 27.28, suggests a potential stabilization at a lower level compared to the earlier, more volatile years. The ratio remains within a narrower range during this period, indicating a potentially more predictable relationship between price and operating profit.

Overall Observations

The P/OP ratio’s movement appears to be influenced by significant shifts in either share price or operating profit per share, or a combination of both. The initial high values suggest either a very optimistic market valuation or limited operating profitability. The subsequent fluctuations likely reflect changes in investor sentiment, growth expectations, and the company’s ability to generate operating income. The recent trend towards stabilization, while still at a relatively high level, could indicate a maturing valuation or improved consistency in operating performance.