Priced north of $1,125 per share at Friday's close, Netflix (NFLX +0.35%) stock looked pretty expensive last week. But would you consider buying Netflix stock if it cost only, say, $112.50?
Because today you can.
Image source: Netflix.
After close of trading on Friday, Netflix's 10-for-1 stock split, first announced two weeks ago, finally became effective. By the time you read this, every Netflix share on the planet will have been sliced and diced and divided up into 10 new smaller shares -- each costing not four figures, but just three.
And here's the important part: The value of the stock didn't change at all.
That's the thing about stock splits. Just like slicing up a pie into four pieces, then slicing those four into eight, and maybe the eight into 16 for a really big party, it really doesn't matter how small you cut the slices, or how many cuts you make. It's still just one pie.
That can be good or bad news for Netflix shareholders, depending on how you look at it. On the one hand, thanks to the stock split, anyone who wants to, can today buy a share of Netflix for roughly the same share price the stock cost nine years ago, in November 2016.
NASDAQ: NFLX
Key Data Points
That could be a really great deal. After all, in 2016, Netflix earned all of $187 million in net profit. This year, Netflix is on course to earn closer to $10 billion. So yes, you're getting only 1/10 of a 2016 share today -- but pre-split, that share is earning 55 times as much profit, and post-split, it's still 5.5x more profitable!
Granted, Netflix stock does still look pretty expensive at a valuation of 48 times trailing earnings. Thanks to the rise in profit, though, Netflix isn't nearly as expensive as it looked 10 years ago. And it's not any more expensive than it was last week, either.
