There's little question that Netflix (NFLX -0.62%) has created a windfall for early investors, generating returns of more than 43,300% in 20 years. Furthermore, those who invested in the streaming stock just five or ten years ago have beaten the market by a wide margin, with gains of 290% and 3,800%, respectively, during those periods, compared to 105% and 260% for the S&P 500.
However, Netflix's stock has recently fallen out of favor with some investors. The most common bearish narrative goes something like this: Once, Netflix was the only streaming game in town. Now, there is growing competition and a host of alternatives. Netflix won't be able to keep up the frantic pace of original content additions and will continue to lose market share as a result. Sound familiar?
Thing is, that argument misses out on several very important factors. In fact, there are 835 reasons investors should ignore the narrative and buy Netflix stock now.
Image source: Getty Images.
Too much is never enough
Netflix has long said that a continuing stream of high-quality new and original content is the key to its success, essentially providing programming to suit every viewing taste. Netflix isn't taking its foot off the pedal in terms of production, either.
During the fourth quarter of 2021 alone, Netflix debuted 835 episodes of content, up more than 50% year over year and more than the next four services combined, according to an analysis by MoffettNathanson. To put those numbers in context, AT&T's (T 0.19%) HBO Max comes in a distant second place at 302 episodes. Other well-heeled competitors also lagged behind. Amazon's (AMZN -1.11%) Prime Video, Disney (DIS -0.83%)-controlled Hulu, and Disney+ rounded out the top five, with 248, 148, and 98 episodes, respectively.
And the Emmy goes to...
This strategy is bearing fruit. In 2021, Netflix came away with 44 Emmys, the most-ever awards for a single network or service. The Crown took best drama series, while The Queen's Gambit won 11 awards out of 18 nominations.
Netflix closed out the year with a bang, with the return of a host of fan-favorite programs such as The Witcher, Tiger King, and Cobra Kai, as well as the final chapter of La Casa de Papel (aka Money Heist). The company also released a number of big-budget, feature-length movies, including Red Notice, Don't Look Up, and The Harder They Fall. Red Notice was such a huge hit on the platform, it prompted Netflix to order back-to-back sequels -- a rare move for the streaming giant.
In October, Netflix revealed that Squid Game, its original program from Korea, had become the company's biggest TV show ever. 142 million member households watched the show in the first four weeks after its release.
The success and wide-ranging appeal of Netflix's original content will no doubt continue to drive subscriber gains and prevent defections.
Image source: Getty Images.
Programming drives financial results
Netflix is the undisputed leader when it comes to penetration, with a whopping 78% of U.S. households subscribing to its streaming video service. At the same time, the company continues to use the same template it employed so successfully at home to expand its presence internationally.
The streaming pioneer isn't the money pit it once was. After burning cash for years, Netflix generated free cash flow of $1.9 billion in 2020, though it got an artificial boost from pandemic-related production shutdowns. Yet, even after ramping-up production again in 2021, the company is still generating cash, and for the first three quarters of 2021, Netflix had free cash flow of $410 million, though it expects this metric to end the year near the breakeven point.
The company announced late last year that it would no longer need to raise external financing for programming or to fund day-to-day operations.
Netflix has also seen a commensurate uptick in profitability. The company generated earnings per share (EPS) of $6.09 in 2020, up 47%. Netflix has already eclipsed that growth during the first nine months of 2021, delivering EPS of $9.91, and will add to that total in Q4. This illustrates that as its subscriber count grows, more of each subscription price drops to the bottom line.
Why now?
Even as Netflix closes out its best year ever, investors have grown cautious, and the stock is down roughly 25% from its recent high. As a result, Netflix is currently trading at a price-to-earnings ratio of less than 47, its lowest valuation since 2015.
Given the company's robust content additions, record-setting industry accolades, and improving financial picture, in-the-know investors should stake their claim in Netflix stock -- before the masses catch on.
