1 Spectacular Stock That Turned $10,000 Into $3.1 Million In 20 Years

There are some companies that have absolutely crushed it for their shareholders. Netflix (NFLX -0.32%) is the perfect example of a very successful investment.

In the last 20 years, that stock streaming services has skyrocketed over 31,100% (as of August 16). This means that a $10,000 investment in August 2004 would be worth $3.1 million today. This is a much better gain than that S&P 500 or Nasdaq Composite index.

Let’s take a look at Netflix’s monumental growth before we figure out if the stock is a smart investment to make today.

Netflix is ​​a creator of categories

There are very few businesses that have become so powerful by creating a new market. Netflix deserves credit for spearheading the streaming movement and helping to hasten the demise of cable television.

The company first launched its service in 2007. And since then, it has been able to rapidly grow its revenue and subscriber base. In the last decade, sales have increased by about 640%. You’d struggle to find businesses with that kind of expansion.

In the early days, Netflix was a far superior solution in the eyes of consumers than the traditional cable television package. People could watch whatever shows and movies they wanted, when they wanted, and as often as they wanted. Time was no longer a constraint on viewing. This propelled Netflix into the global media powerhouse it is today.

In the streaming industry, scale means everything. Netflix’s main advantage is precisely why it has become the dominant player in the market. It has 278 million subscribers and has generated more than $36 billion in revenue in the past 12 months. This gives it the ability to spend around $17 billion in cash on content while being extremely profitable.

Netflix is ​​expected to report an operating margin of 26% this year. This would be a huge improvement from 14% five years prior in 2019. This is a clear sign of a scalable business model. Fixed expenses, mainly for content, are better leveraged as sales increase over time.

And thanks to its ability to generate billions each year in free cash flow, Netflix is ​​now very financially sound. Driving really drives share buybacks to return capital to investors.

The future of Netflix

Netflix may have been a fantastic investment in the past, but investors should look at the current situation with a fresh perspective. To be clear, this is a more mature enterprise, so growth may slow in the coming years.

Management believes there are an additional 500 million households with smart TVs that are not currently Netflix customers. While this is huge addressable marketfetching them will not necessarily be such an easy task. These people probably need more convincing to sign up for a Netflix subscription than early adopters of streaming.

Still, to its credit, Netflix is ​​testing new waters to spur growth. In the past few years, it has entered mobile gaming, rolled out an ad tier, and stopped password sharing. In addition, it has finally entered the area of ​​live entertainment, as deals with TKO and the NFL clearly proves it. I suspect the business will acquire more professional sports rights in the coming years.

These recent initiatives are necessary because the industry has never been more competitive. There are so many companies vying for consumers’ attention, so it makes sense for Netflix to do everything it can to stand out. The environment is more challenging today than it was a decade or more ago, to put it mildly.

At the time of writing, Netflix shares are trading at a price-earnings ratio of 43. I am confident that the returns ahead will not resemble the past. But investors who prioritize valuation over quality may want to consider adding the stock to their portfolios.