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.
Charts
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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 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.
| Year | 2011 | 2012 | 2013 | 2014 | 2015 |
| ROIC | 3.94% | ||||
| Sales (MUSD) | 3205 | 2609 | 4375 | 5505 | 6780 |
| EPS (USD) | 0.59 | 0.04 | 0.26 | 0.62 | 0.28 |
| Equity (MUSD) | 643 | 745 | 1334 | 1858 | 2223 |
| Operational cash flow (MUSD) | 226126 | 17152 | 112403 | 266799 | 122641 |
| P/E | 409 |
| Year | 2016 | 2017 | 2018 | 2019 | 2020 |
| ROIC | 2.74% | 6.88% | 8.38% | 8.60% | 11.52% |
| Sales (MUSD) | 8831 | 11693 | 15794 | 20156 | 24996 |
| EPS (USD) | 0.43 | 1.25 | 2.68 | 4.13 | 6.08 |
| Equity (MUSD) | 2680 | 3582 | 5239 | 7582 | 11065 |
| Operational cash flow (MUSD) | 186678 | 558929 | 1211242 | 1866916 | 2761395 |
| P/E | 295 | 154 | 100 | 78 | 89 |
ROIC and P/E are gurufocus.com. The rest are from macrotrends.com
Growth Rates
| Yearly average | 10 year | 5 year | 1 year |
| ROIC | 8% | 12% | |
| 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% |
Price calculations
| Growth rates x 2 | Average | Median P/E | Average between the high and low P/E | |
| P/E | 88 | 207 | 154 | 147 |
| Calculated future price in 10 years | 24616 | 46837 | 33981 | 37459 |
| Calculated Price | 6154 | 11709 | 8495 | 9365 |
| 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.