Stock Trade Market

Individual investors all probably want to find and own businesses that can produce outstanding returns over the long haul. The financial gains can be life-changing.

That’s exactly what Netflix (NFLX -1.38%) has done for its longtime shareholders. The top streaming stock has generated a monster return of 14,860% in the past 20 years, turning a $10,000 investment into a cool $1.5 million (as of June 27).

Let’s take a look at Netflix’s magnificent ascent. Then, we’ll examine factors that could help determine whether the stock is a smart buy today.

Netflix is a category creator

The internet has changed a lot of things in the economy. One area where it’s had a profound impact is in the media and entertainment sector. Whereas 20 years ago the primary way to consume video entertainment was via your TV and cable subscription, nowadays, content can be consumed anytime, anywhere on a variety of different devices.

Netflix deserves the bulk of the credit for pioneering the streaming industry as we know it. The executive team correctly predicted that the internet would fundamentally change how video entertainment would be consumed. The company launched streaming in the U.S. in 2007. The rest is history.

The business started introducing its service in international markets. And this helped Netflix rapidly grow its subscriber base and revenue. By not having direct competition for a long time, the company was attracting customers simply because it provided an impressive user experience. Consumers could watch a massive library of shows and movies, whenever they wanted, and however many times they wanted, all for a reasonable monthly price.

That monster success started the so-called streaming wars. Today, there are an ever-growing number of streaming services on the market, but none can match Netflix’s scale.

Dominating the media landscape

That scale is demonstrated by Netflix producing trailing-12-month revenue of $34.9 billion. And as of March 31, the business has a whopping 270 million subscribers in 190 countries. This is truly a global enterprise.

Netflix has now reached a point where it’s printing money. Free cash flow totaled $6.9 billion in 2023, a major turnaround from a $3 billion loss in 2018. This spurred management to start buying back stock. And with each passing year, Netflix’s operating margin continues climbing higher. it came in at a stellar 28.1% in Q1.

Netflix is able to spend so much money in absolute terms on producing and licensing content, which draws in new customers, while minimizing churn. However, these fixed content costs are spread out over a huge membership and sales base. This supports the company’s consistent cash flows.

Is it too late to buy Netflix stock?

With a staggering 20-year return of almost 15,000%, which absolutely crushes the gains of both the S&P 500 and the Nasdaq Composite, investors are correct to wonder if it’s too late to buy shares. Perhaps the opportunity has passed us by.

But there is one key reason to be optimistic. According to Wall Street consensus estimates, Netflix is projected to increase revenue and earnings per share at compound annual rates of 12.5% and 29.8%, respectively, between 2023 and 2026. It’s clear analysts see a bright future for the business.

Of course, forecasts should always be taken with a grain of salt. However, it should provide investors with some reassurance that there are still more revenue and earnings gains expected on the horizon.

To be clear, though, don’t expect Netflix to generate anything close to the returns that it did historically, especially because it’s a more mature company now. Plus, the current forward price-to-earnings ratio of 37.3 isn’t as compelling as it was just a couple of years ago.