I've Covered Netflix for 24 Years. Here's Whether the Stock Is Overvalued Right Now.

I'm not one to typically celebrate investing anniversaries, but this month marks 24 years since I became a Netflix (NASDAQ: NFLX) shareholder. It's been largely ups along the way, but lately there's been a hard road down.

Shares of the company behind the world's leading premium streaming video service have plummeted more than 40% over the past year. I got in early, a few months after Netflix began trading and it was a broken IPO. Today's pullback isn't the same ground-floor opportunity, but is the stock a smart buy now or still overvalued? Let's take a closer look.

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Changing channels

Netflix stock was a sliver of what it would eventually become back in 2002. I disregarded Netflix when it went public earlier that year, figuring the market for mailing DVD rentals by mail was no match for the instant gratification that Blockbuster and other neighborhood video stores offered. As an early subscriber to the platform, I realized I was wrong. When I changed my mind in early October to become a shareholder -- and wrote about my bullish turn on Oct. 14 -- my timing was great.

If you bought Netflix the day that article came out, you would have a 1,400-bagger on your hands today. I would unfortunately sell nearly all of my own shares along the way. The 1% of the original stake I still own is my largest personal holding. Imagine where I would be with the other 99%.

Netflix has still come a long way in the 24 years that I've been following the company since its 2002 springtime IPO. Netflix was losing money the year it went public, generating $153 million in revenue. Trailing revenue is now more than $48 billion at a record net margin.

Making sense of today's opportunity

The valuation math may change by the time that Netflix reports third-quarter results after the market close on Wednesday. Right now, it's easy to make a compelling bullish case for the out-of-favor growth stock.

Netflix is currently trading for less than 20 times this year's projected earnings. It's a historical bargain, even as business slows as its global subscriber base matures. Guidance issued this summer calls for 11.7% revenue growth for the third quarter, which it will peel back on Wednesday afternoon.

Even though Netflix staged a near-term retreat following each of its last few reports, the valuation is compelling. Netflix is trading for less than 19 times next year's analyst profit target and just 15 times the following year's profit forecast.

With its top rivals consolidating and pushing out price increases in recent months, the near-term outlook for the industry is more favorable than you might expect. Netflix has scalability and the pricing flexibility to keep growing even at this stage of its life cycle.

I've suffered through all of the downturns. The current pullback isn't as bad as the Qwikster aftermath of 2011 or the growth stock sell-off in 2022. The stock was cheaper coming out of those two bear turns, but Netflix is a premium business trading at a discount to the market. This is the kind of story that usually plays out well for the believers.

Rick Munarriz has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.