Numbers analysis: Netflix (NFLX)

Netflix’s primary business is a streaming video on demand service now available in almost every country worldwide except China. Netflix delivers original and third-party digital video content to PCs, Internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. In 2011, Netflix introduced DVD-only plans and separated the combined streaming and DVD plans, making it necessary for subscribers who want both to have separate plans.

Description from www.nordnet.se

I decided to look into the FAANG (Facebook, Amazon, Apple, Netflix and Alphabet) companies. Googles growth turned out better then expected while the price was reasonable. Link to my other post. https://thedollarmillionaire.com/2020/08/numbers-analysis-alphabet-googl/

In this post I will look at Netflix. From a Technichal analysis point of view it seems to be near a support. If the support holds it does look like a good entry.

Charts

10 year weekly chart
1 year daily chart

Technichal analysis by Aksel Kibar from a few days ago;

Statistics

The numbers analysis below is the first step in Rule 1 Investing by Phil Town. In his book Rule #1: The Simple Strategy for Successful Investing in Only 15 Minutes a Week! (no affiliate) he writes about his investing philosophy which centers around four key principles he refers to as the Four M’s: Meaning, Moat, Management and Margin of Safety.

The first requirement is an average annual growth rate of at least 10%, the past 10 years, in the ROIC (Return On Invested Capital), Sales, EPS (Earnings Per Share), Equity and Cash Flow. The average 5 year and 1 year growth rates should also be above 10%. High growth rates suggest a sustainable MOAT.

Next step is to analyse the the Four M’s: Meaning, Moat, Management and Margin of Safety.

The aim is to find a fantastic company, with a great track record, to invest in for at least 10 year. The expected average yearly return is at least 15%. This is used in the calculations. With an investment of 100 USD and a yearly return of 15%, 100 USD will have increased to 405 USD in 10 years time because of interest-on-interest or compound interest.

Year20102011201220132014
ROIC
Sales (MUSD)21633205260943755505
EPS (USD)0.420.590.040.260.62
Equity (MUSD)29064374513341858
Operational cash flow (MUSD)16085322612617152112403266799
P/E
Year20152016201720182019
ROIC3.94%2.74%6.88%8.38%8.60%
Sales (MUSD)67808831116931579420156
EPS (USD)0.280.431.252.684.13
Equity (MUSD)22232680358252397582
Operational cash flow (MUSD)12264118667855892912112421866916
P/E40929515410078

ROIC and P/E are gurufocus.com. The rest are from macrotrends.com

Growth Rates

Yearly average10 year5 year1 year
ROIC6%9%
Sales Growth Rate28%31%28%
EPS Growth Rate29%96%54%
Equity Growth Rate44%36%45%
Cash Flow Growth Rate31%98%54%

Price calculations

Growth rates x 2Average P/EMedian P/EAverage between the high and low P/E
P/E88207154147
Calculated future price in 10 years13833328072438323275
Calculated Price3483820260965819
Margin of Safety (50%)1742410130482909


Current price: 499 USD

Fair value price range: 3483 – 8202 USD

MoS price range: 1742 – 4101 USD

To be considered for further analysis here, as a growth stock, the requirement is that the 10 year yearly average growth rate is at least 5% in all five categories. They are.

If the numbers are correct they suggest that Netflix is a bargain here as long as they can sustain the same growth rates. The ROIC is the most important number and it’s lower than the rest. It looks like it is increasing. I will try to do a more indepth analysis soon.

I’m initiating a small position in Netflix for my longterm account. I bougt 1 share today and will look to buy more.

Disclaimer: I also own Netflix with leverage in my Trading account.

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