This year has been a banner year for Netflix (NFLX +1.68%) shareholders. Despite fears to the contrary, the company's growth has continued unfettered, as new viewers flock to its streaming video platform. The resulting sales and profits have climbed to new heights, fueling an ongoing surge in the stock, which now stands at roughly $1,136 per share (as of this writing).
The magnitude of the stock price led to rampant speculation that it was only a matter of time before Netflix would conduct a stock split. The company recently confirmed investor suspicions, announcing a long-anticipated 10-for-1 stock split, which is scheduled to take place after market close on Friday, Nov. 14. The stock will begin split-adjusted trading when the market opens on Monday, Nov. 17.
Let's review the specifics of the stock split and why Netflix looks like a great buy this month.
Image source: Netflix.
The details
Stock splits have enjoyed a resurgence in recent years, prompting investors to take a fresh look at companies they might otherwise overlook. The process of a stock split is simple enough. The company in question will increase the number of outstanding shares and decrease the stock price by a commensurate amount. Netflix shareholders will see a tenfold increase in the number of shares they hold, with a corresponding reduction of 90% in the stock price.
For example, as of Sept. 30, Netflix had 423,732,334 shares outstanding. The company plans to increase the total number of shares outstanding to 4.23 million, reducing its stock price to about $113 per share (as of market close on Tuesday). Note that there will be no change in the total value of the shares owned or the market cap of the company.
This will not only remove the psychological barrier of a stock price above $1,100, but also make the stock "more accessible to employees who participate in the company's stock option program," according to Netflix's press release.
Catalysts abound
This week's stock split will mark the first one since 2015, during which time Netflix stock has been a 10-bagger for patient investors. And while the stock split itself is no reason to buy the stock, history suggests the underlying performance that led to the split will likely continue to drive the stock price higher.
Companies that split their shares generate stock price increases of 25%, on average, in the year following the announcement, according to data compiled by Bank of America analyst Jared Woodard. For context, that's more than double the average gain of 12% for the S&P 500 (^GSPC +0.06%).
There are other reasons to be bullish. Perhaps the most intriguing is Netflix's slate of popular content, led by the upcoming release of the fifth and final season of Stranger Things. The sci-fi/horror series is the streamer's third-most popular show ever, according to Netflix, and is already generating buzz ahead of its swan song. The final episodes are scheduled to be released in installments between Nov. 26 and Dec. 31.
Previous seasons of the program have led to a surge in subscribers, and this final season will likely be no different. When the fourth season of Stranger Things was released in mid-2022, it generated 1.35 billion hours viewed, according to Netflix. At the time, that was the most-watched season of an English-language series ever.
NASDAQ: NFLX
Key Data Points
There's more. The recent release of director Guillermo del Toro's take on Frankenstein has gotten rave reviews from viewers and critics alike, and Netflix has attracted plenty of attention with new seasons of Nobody Wants This, Emily in Paris, and The Witcher. Let's not forget that the streamer has an NFL Christmas Day doubleheader, featuring the Dallas Cowboys vs. the Washington Commanders and the Detroit Lions vs. the Minnesota Vikings. With something for everyone, Netflix offers a compelling value proposition to subscribers.
Is Netflix stock a buy now?
Netflix's surging stock price has been accompanied by a commensurate uptick in its valuation. As such, the stock currently trades for 35 times next year's expected earnings. While that's undoubtedly a premium, it should be viewed in context.
Wall Street expects Netflix to grow its revenue by 11%, on average, over the next five fiscal years. Add to that the company's ability to dependably attract new viewers, hang on to existing ones, and consistently increase its revenue and profits, and it's easy to see why the stock is deserving of a premium.
Management has a proven track record of navigating Netflix through increasing competition and economic uncertainty, and even laid out plans to drive the company to a $1 trillion market cap by 2030. That's more than double the company's current value.
While I generally don't recommend date-driven buying decisions, I believe Netflix offers investors a great combination of short-term catalysts and long-term opportunity.
