I decided to revisit Netflix. I owned it the past and bought back a small position today. My last analysis was in December 2020.
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
The price broke out after over a year of sideways movement. Monster stocks have a tendency of going sideways for long periods before continuing up.
Please open the image in a new window or tab for larger images.
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 analyze 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.
|Operational cash flow (MUSD)||226126||17152||112403||266799||122641|
|Operational cash flow (MUSD)||186678||558929||1211242||1866916||2761395|
ROIC and P/E are gurufocus.com. The rest are from macrotrends.com
|Yearly average||10 year||5 year||1 year|
|Sales Growth Rate||26%||39%||24%|
|EPS Growth Rate||30%||116%||47%|
|Equity Growth Rate||37%||49%||46%|
|Cash Flow Growth Rate||32%||118%||48%|
|Growth rates x 2||Average||Median P/E||Average between the high and low P/E|
|Calculated future price in 10 years||24616||46837||33981||37459|
|Margin of Safety (50%)||3077||5855||4248||4682|
Current price: 582 USD
Fair value price range: 6154 – 11709 USD
MoS price range: 3077 – 5855 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.
The numbers are higher than in my last post. Almost everytime I do this rule 1 calculations they are off the charts in these kind of companies with high growth rates. I don’t know what to make of it. I’m considering my position as a long term (years) hold.