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
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.
| Year | 2010 | 2011 | 2012 | 2013 | 2014 |
| ROIC | |||||
| Sales (MUSD) | 2163 | 3205 | 2609 | 4375 | 5505 |
| EPS (USD) | 0.42 | 0.59 | 0.04 | 0.26 | 0.62 |
| Equity (MUSD) | 290 | 643 | 745 | 1334 | 1858 |
| Operational cash flow (MUSD) | 160853 | 226126 | 17152 | 112403 | 266799 |
| P/E |
| Year | 2015 | 2016 | 2017 | 2018 | 2019 |
| ROIC | 3.94% | 2.74% | 6.88% | 8.38% | 8.60% |
| Sales (MUSD) | 6780 | 8831 | 11693 | 15794 | 20156 |
| EPS (USD) | 0.28 | 0.43 | 1.25 | 2.68 | 4.13 |
| Equity (MUSD) | 2223 | 2680 | 3582 | 5239 | 7582 |
| Operational cash flow (MUSD) | 122641 | 186678 | 558929 | 1211242 | 1866916 |
| P/E | 409 | 295 | 154 | 100 | 78 |
ROIC and P/E are gurufocus.com. The rest are from macrotrends.com
Growth Rates
| Yearly average | 10 year | 5 year | 1 year |
| ROIC | 6% | 9% | |
| Sales Growth Rate | 28% | 31% | 28% |
| EPS Growth Rate | 29% | 96% | 54% |
| Equity Growth Rate | 44% | 36% | 45% |
| Cash Flow Growth Rate | 31% | 98% | 54% |
Price calculations
| Growth rates x 2 | Average P/E | Median P/E | Average between the high and low P/E | |
| P/E | 88 | 207 | 154 | 147 |
| Calculated future price in 10 years | 13833 | 32807 | 24383 | 23275 |
| Calculated Price | 3483 | 8202 | 6096 | 5819 |
| Margin of Safety (50%) | 1742 | 4101 | 3048 | 2909 |
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.