Investors will often avoid a stock that has surged in value, believing the biggest gains have already been had. That could easily be said of streaming video pioneer Netflix (NASDAQ:NFLX), which has more than doubled over the past year.

Yet, even in light of the company's rare subscriber miss last quarter, the trend has been undeniably upward, and at least one analyst has laid out a convincing list of reasons Netflix stock will likely keep climbing.

Netflix sign at entrance to its Los Gatos campus.

Image source: Netflix.

The analyst

Heath Terry with Goldman Sachs recently raised the company's price target to $470 -- among the highest of the Wall Street elite, and about 24% higher than the current stock price. One of the biggest factors in his bullish take on Netflix is that investors continue to underestimate the vast potential for significant subscriber growth.

In a note to clients, Terry wrote, "We believe subscriber growth ... will drive financial results well above consensus estimates and should continue to drive stock price outperformance." He continued by laying out three reasons he thinks investors are underestimating Netflix's potential:

1. Mobile domination

Terry believes the potential for mobile-only subscribers is vastly underappreciated. With its ongoing expansion into international markets, more and more customers are watching video on smartphones, which could result in a worldwide market of more than 1 billion potential customers.

"While in-home television remains the primary medium by which people consume longer-form video content, smartphone penetration is on the verge of reaching near global ubiquity, data costs are declining rapidly, and viewing habits are shifting to mobile out of home," Terry wrote.

Accelerating smartphone ownership bears that out, with nearly every developed country boasting penetration rates of more than 80%, according to a report by Deloitte.  

2. More content equals more subscribers

Netflix decided long ago that the path to greater subscriber growth was having programming for everyone on its platform. The company doubled down on that strategy when it began producing its own shows back in 2012. Netflix plans to spend between $7.5 billion and $8 billion on content this year, resulting in about 700 new series and 80 original films. 

Man watching streaming series in a laptop computer, lying in the bed.

Image source: Getty Images.

"New shows and movies drive gross subscriber additions, and the breadth of the library reduces churn," Terry wrote. "We believe acceleration in spend into next year should drive subscriber growth above consensus."

3. Greater than the sum of its parts

Netflix has a host of advantages that go far beyond its growing library of programming. The company has gained an edge resulting from the decade-long head start it has on the majority of its streaming competition. Netflix has gathered data about customer viewing habits going back more than 10 years, and has had the opportunity to hone its user-friendly platform and interface, which boasts 130 million subscribers and counting.

"Anecdotal and quantitative evidence suggest that Netflix's scale, distribution and data advantage, and the flexibility of the medium compared to ad-supported channels, is driving higher quality, [and] more popular content per dollar spent," Terry wrote. "We believe these advantages compound."

A final thought

Netflix's growing subscriber count has been the gauge cited most often by Wall Street in judging the company. Netflix has regularly beaten consensus estimates and its own forecasts, though last quarter saw a rare miss. Terry thinks investors need to look at the overall trend. He believes Netflix will add 30 million paying customers in 2019, and could top 300 million total subscribers within five years.

"Given the size of the market, Netflix's competitive position, and the broader forces driving on-demand content consumption globally, we believe that forecast and target are more likely than not to prove conservative," he wrote.

I wholeheartedly agree with Terry's assessment, one of many reasons why Netflix is my largest stock holding.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.