Without a doubt, one of the most popular stocks these days is Netflix (NASDAQ:NFLX). Stock jocks love to discuss it and look forward to every earnings announcement.

The company's Q4 earnings and its full-year report show that revenues for the quarter ended Dec. 31, 2005, increased 36% to $195 million. Operating income jumped 59% to $7.5 million. Net income came out to more than $38 million ($0.57 per diluted share), but that was the result of a huge tax benefit, so the company backed that out and also considered net income without it. So we observe about $8 million vs. $5.6 million one year ago.

Let's get a handle on how Netflix is doing from the viewpoint of free cash flow. For the fourth quarter, the company generated $24.3 million in free cash, an astounding 350% increase over last year's fourth quarter. For the full year, free cash generation declined 30% to $24.3 million. Operational cash flow did, however, increase 10%, coming in at $163 million for the year.

These numbers are very good, especially in the context of a concern like Netflix's -- it's the future of its subscriber base that counts the most, not so much a decline in free cash flow. On that front, the company is doing well, having increased its subscriber base 60% year over year to about 4.2 million. If Netflix can continue to grow and eventually surpass its goal of 20 million satisfied clients by 2012, then it would prove to be an excellent long-term investment.

The one problem here is the cost of acquiring new customers. This metric increased 7.6% to $38.08 per gross subscriber addition for 2005. The challenge for Netflix is to keep those costs at as rational a level as conceivable and to keep the churn rates at very low percentages. The current churn rate of 4% represents a decrease, so this measure is headed in the right direction. Netflix is doing well against its main competitor, Blockbuster (NYSE:BBI), and with the introduction of new DVD formats, it should benefit as time goes on. It will need to keep an eye on video-on-demand technologies, which could turn out to be a threat.

Tuesday night, after market hours, Netflix stock was boosted more than 9% (and that's on top of a 6% gain in Tuesday's regular session). If I compare Wednesday morning's price of about $28.50 to the free cash flow for the last 12 months and the $212 million of cash on the balance sheet, then I get an enterprise value-to-free cash flow ratio of around 55 because the company does not carry any debt. That seems pretty pricey.

Again, though, considering those subscriber appreciation rates and the expanding top line, it might not be too much to pay for growth. I'd patiently wait, however, before pulling the trigger and initiating a position. Better prices may be available down the road, because that is simply the nature of the marketplace.

Check out some more Takes on Netflix:

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Fool contributor Steven Mallas owns none of the companies mentioned. The Fool has a disclosure policy.