Video-streaming giant Netflix (NASDAQ:NFLX) has been crushing the market in 2020. The stock gained 50% year to date and 59% over the last 52 weeks, fueled by global interest in entertainment options during the coronavirus lockdowns.
Don't let Netflix's gains keep you away from buying the stock, though. Let me show you why Netflix is a great buy at nearly any price, including the lofty levels the stock occupies today.
Winners keep winning
Skyrocketing share prices can't be a deal-breaker for growth investors. Selling out when your favorite growth stock is heating up will leave you out of any long-term gains. You can make some money this way, but that's speculation -- not investing.
You could have pocketed a one-year return of 134% on Netflix in 2015 or a 298% gain in 2013. While those plays would have fattened your wallet right away, you would have missed out on much greater gains in the years to come. Compound returns are a magical thing in the long run:
That's why it's a bad idea to cash in your recent Netflix winnings today. This company is nowhere near finished with its market-crushing growth story.
Netflix, the future cash cow
If the COVID-19 era has taught us anything, it's that video-streaming services are the way of the future. Movie theaters are headed for that great gig in the sky, and Hollywood's leading studios are reconsidering their commitment to the traditional cinema experience. Many of them have launched their own video-streaming services to a varying degree of success, but Netflix remains the clear leader in this explosive market.
Netflix has now proven that it can generate positive cash profits by slowing down its content production efforts, as it was forced to do in 2020. The company will go back to negative cash flows in 2021 with a renewed focus on making more original movies and shows, because that's the lifeblood of this company's subscriber growth. The next time Netflix slows down its content spending, it will start a decades-long run of stable operating costs and content-creation budgets, but large and growing cash profits.
Master investor Warren Buffett famously prefers buying a great business at a fair price over a fair business at a great price. You get what you pay for in the long run. Netflix is worth a premium price because it's a premium company with great leadership and an unbreakable focus on what's best for the business in the long term.
I'm far from alone in this assessment, by the way. Skyrocketing stock prices are often accompanied by rising short-sale interest, as the bears and the critics hope to borrow shares at high stock prices and sell them back later at much cheaper levels. But Netflix was able to match its surging stock price with an all-time low interest in short-selling the stock. The safe bet here is that Netflix's stock chart will continue to turn skyward: