Netflix (NFLX 2.20%) stock trailed the market through most of 2021, but shareholders might have a brighter year ahead. Sure, the subscription streaming video leader isn't growing as quickly as it was during the early phases of the pandemic, or even before COVID-19 placed new premiums on at-home entertainment. But the business is still outpacing industry peers even as it shows off its new profitability strengths.
With that big picture in mind, let's look at the likely prospect that the stock returns to its all-time high market capitalization of $300 billion in the year ahead.
Image source: Getty Images.
Slower sales trends
The big takeaway from most of 2021 was that Netflix is expanding more slowly but remains a growth stock. Sales are up 20% through late September but rose just 16% in the most recent quarter. That 16% pace is a potential worry for investors since Netflix aims for at least 20% annual gains. The company hasn't issued an official 2022 forecast yet, but most Wall Street pros are predicting a 15% increase ahead.
That's great news for an established global giant, but investors can find faster sales gains elsewhere. Roblox (RBLX 5.33%) is expected to grow sales at over 20% in 2022 after roughly tripling revenue this past year. Roku (ROKU 3.57%) is targeting nearly 40% higher sales after a 50% spike in 2021.
The case for $300 billion
Netflix stock carries some benefits that these smaller peers lack, though. Start with profitability where operating margin is above 20% of sales heading into 2022. That's twice Roku's current level, and Roblox isn't profitable yet on that basis.
NFLX Operating Margin (TTM) data by YCharts
Cash flow is another factor that will likely push Netflix shares back toward all-time highs. Co-CEO Reed Hastings and his team are targeting positive cash generation this year for the first time since Netflix embarked on its transition to streaming video. The company could make impressive strides from that modest start, too.
Cash flow might easily approach 15% of sales over time, CFO Spencer Neumann has estimated. Those resources will allow the company to spend more than even rivals like Disney (DIS 1.00%) could hope to manage. It will also likely fund aggressive stock-purchase spending in 2022 and perhaps a big dividend payment further down the road.
Faster growth ahead
There's also a good chance that Netflix's best growth days are ahead of it despite its current massive size. Many of the company's global markets aren't nearly as mature as the U.S. segment, with places like India likely to accelerate sales gains.
The company only accounts for about 6% of TV screen time in the U.S. and could easily push that number higher as it bulks up the content portfolio in niches like animated films, hit series like Squid Game, and video games. "We think we have a super long runway here," Neumann told investors in September, "to address ... upwards of 1 billion pay TV households ... around the world." Netflix currently counts just over 222 million subscribers.
That said, wider market moves might keep Netflix below its all-time high over the short term. Growth-focused investors might temporarily reward newer companies in the home entertainment sector that have a better chance of boosting sales by 40% or more in a year.
But for growth at scale, combined with spiking earnings and cash returns, Netflix is in a class of its own. Wall Street will eventually acknowledge that fact by lifting the stock back up to $300 billion, and likely beyond, over the next few quarters.
