The stock market is a fantastic arena that allows the average person to generate life-altering wealth. The broader indexes have done well. However, investors who want to supercharge their returns can certainly look to identify individual businesses that have what it takes to boost portfolio gains.
In the past decade, this one category-creating enterprise has seen its shares soar 1,250% (as of May 20). This rise would've turned a $1,000 investment back then into $13,500 today. Anyone would be pleased with this kind of result.
Continue reading to learn more about this stock and whether or not it deserves to be purchased right now.
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From growing rapidly to dominating the industry
There aren't many success stories in the past 10 years that shine brighter than Netflix (NFLX 0.04%). The media juggernaut disrupted the traditional cable industry with its superior user experience and value proposition. Consequently, it registered unbelievable growth, going from 54 million paid subscribers in 2014 to 302 million at the end of last year.
Even though the business no longer reports subscriber metrics, Netflix's growth engine is still roaring. It was able to increase revenue by 12.5% in the first quarter. And management upped its guidance for the full year, as it now expects sales to total $44 billion (at the midpoint) in 2025, which would translate to a 12.8% year-over-year gain.
The growth strategy is pretty straightforward. Netflix will continue to introduce compelling content offerings when it comes to movies, series, and documentaries. These days, more live events are being included to drive greater member sign-ups. And by launching a highly successful ad-supported tier, the company can draw in price-sensitive consumers who are fine with commercials.
Artificial intelligence (AI) will also play a role, especially when it comes to producing better content. "So our focus is simple," co-CEO Ted Sarandos said on the Q1 2025 earnings call. "Find ways for AI to improve the member and the creator experience."
Building durable competitive strengths
For a company to get to the position Netflix is in, it has to build some sustainable competitive advantages, otherwise known as an economic moat. One factor to consider is Netflix's massive size, which allows it to spread its significant content costs over a large user and revenue base.
That scale shows up directly in the financial statements. Netflix's profitability has improved drastically. The company's operating margin was 18% in 2020. Executives believe this key performance metric will come in at 29% in 2025. Add an expanding bottom line to rising revenue, and you see soaring earnings for the streaming leader.
The Netflix brand also can't be overlooked. It's rare to see a company's name become synonymous with the actual verb, in this case streaming. This highlights the dominant position Netflix has attained in the streaming landscape, particularly gaining unmatched customer mindshare. Again, it comes down to giving users a top-notch experience on a consistent basis.
Netflix is no secret stock
The ideal situation for investors looking to score huge gains is to find an up-and-coming company that the rest of the market might not yet be sold on. Once the business puts up consistently strong financial performance, the stock price should follow as more investors start to appreciate what's going on.
This situation was the perfect way to describe Netflix a decade ago, as it was early on in its journey to streaming dominance. Right now, however, I don't think Netflix fits the description. As of this writing, the price-to-earnings ratio sits at a steep 56. This underscores the immense levels of optimism the investment community has for the business, which is firing on all cylinders.
It's safe to say that the valuation isn't compelling today, leading to what could be subpar returns going forward. And this makes me hesitate to buy the stock right now.
