The stock market is the best tool available to most people when it comes to building lasting wealth. In the past two decades, the S&P 500 returned 546%, including dividends. That gain is hard to dismiss.

Unsurprisingly, some individual businesses have fared much better. Take Netflix (NFLX 2.51%). The streaming stock might be one of the best-performing in recent times. It has skyrocketed 46,000% since its initial public offering in 2002, turning a $10,000 initial investment into $4.6 million today.

Let's look at Netflix's rise over the past couple decades before figuring out if the stock makes for a smart buying opportunity today.

Creating a new entertainment category

Netflix's early executive team, headed by co-founder Reed Hastings, was convinced early on that the internet was going to revolutionize how people viewed video entertainment. Consequently, they transitioned the business to a DVD-by-mail service to one fully focused on streaming. It also helped that the internet was becoming more prevalent, connectivity speeds were getting faster, and hardware devices were becoming more user-friendly.

Netflix rode these infrastructure upgrades to rapid growth. What started as a streaming service in 2007 just in the U.S. has transformed into a truly international operation. Netflix has a presence today in 190 countries and territories. It's successfully ventured into new programming categories, video games, advertising, and live events.

After years of strong revenue and subscriber gains, both of which continue to this day, Netflix has become a global media powerhouse. The company generated $35 billion in sales in the past 12 months, and it currently has 270 million members. These figures are up 121% and 94%, respectively, from about five years earlier in calendar 2018.

Critics always pointed to the fact that Netflix was burning so much cash as it expanded. To their dismay, this is now a company that generates ridiculous amounts of profit. After reporting an operating margin of 21% last year, the leadership team expects this metric to come in at 25% in 2024.

What's more, Netflix produced $8.5 billion in free cash flow (FCF) combined in 2022 and 2023. Estimates call for $6 billion in FCF this year. This financial windfall helps fund ongoing share repurchases.

It shouldn't be shocking that Netflix's monster success has resulted in a very crowded streaming industry these days. There are some deep-pocketed competitors, like Apple's Apple TV+, Walt Disney's Disney+, and Amazon Prime Video, as well as numerous subscale service providers. Netflix's first-mover advantage gives it tremendous scale and reach that rivals can't really compete with.

Play or pause?

Netflix's returns going forward aren't going to resemble the past. That's the reality that prospective investors need to grapple with. The service is largely fully penetrated in its most lucrative market, namely the U.S., where it will have to rely more on price hikes to drive growth.

Management points out that there are 500 million smart-TV households in the world (excluding China, where Netflix isn't available). Based on its current subscriber count of 270 million, the business still has potential to add new customers over time. But with much of the low-hanging fruit taken, it's reasonable to assume Netflix's expansion trajectory will slow from the previous decade.

To be clear, that doesn't mean this is an unattractive investment opportunity. Netflix is still set to increase revenue by double digits over the next three years, according to Wall Street consensus analyst estimates. Earnings are projected to rise at an even faster rate.

If you're bullish on these growth trends, then paying the current forward price-to-earnings ratio of 30 seems almost like a no-brainer decision. Just be sure to maintain a long-term time horizon of at least five years.