Key Points
Netflix is on track for another strong year where it is likely to finish up more than 20%.
The company recently reported earnings, which yet again showed strong growth.
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Netflix (NASDAQ: NFLX) recently reported another strong quarter, a testament to the company’s ability to continually innovate and find ways to grow. It has been successful in making its own movies and shows, offering ads, and cracking down on password sharing — all moves that may not have been all that convincing when they were first announced. And yet, the company continues to do well.
The company’s dominance in the streaming business has propelled its stock to a valuation of over $500 billion. It has been a tremendous market-beating stock, and there’s one stat that highlights just how truly special and impressive Netflix has been as a long-term investment in recent years.
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Netflix stock is on track for at least a 20% gain for the seventh time in the past nine years
As of Tuesday’s close, shares of Netflix were up around 32% year to date. Unless the stock encounters some considerable headwinds later this year, odds are it will produce a return in excess of 20% yet again in 2025. And if that happens, that will be the seventh time it has done so in just nine years.
The lone exceptions were in 2021 and 2022, when concerns around inflation and interest rates were weighing on growth stocks. In 2021, Netflix rose in value but by just 11% as a late-year decline sent it into a tailspin, which continued into 2022, when it fell by more than 50% that year.
Aside from those blemishes, since 2017, the stock has routinely generated 20% gains or more annually. That’s particularly impressive when you consider that the S&P 500‘s long-run average annual return is right around 10%. While the broad index has amassed returns totaling 185% since 2017, Netflix has blown past it with gains totaling more than 850%.
The company continues to impress with solid earnings numbers
Earlier this month, Netflix reported its latest earnings numbers, which continued to look strong. It beat analyst expectations for the second quarter (which ended on June 30), as revenue of $11.08 billion came in higher than forecasts of $11.07 billion. And its earnings per share of $7.19 came in comfortably higher than what Wall Street was looking for — $7.08. Overall, its sales grew by 16% year over year.
The company, did, however, warn that its margins will decline a bit in the latter half of the year as sales and marketing costs increase as the company releases more content. But that’s a trend that has become the norm for the business in previous years and shouldn’t necessarily raise alarms for investors.
Should you buy Netflix stock today?
Netflix has been a tremendous growth stock to own for several years now. Even with a massive decline in 2022, it has generated fantastic returns for investors who have held on. The streaming stock is undoubtedly expensive today, as it trades at 50 times trailing earnings, a steep premium.
There is some risk of a correction in the near term, but with the company offering consumers a wealth of content and being a top streaming business to invest in, it’s still hard not to like Netflix as a long-term investment. It may be due for a slowdown at some point, and it won’t always generate 20% returns, but if you’re willing to hang on, you can still generate great returns from investing in the business over the long haul.
As a leader in the streaming industry, Netflix can be a good stock to buy and forget about.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
