In the past two decades, the S&P 500(SNPINDEX: ^GSPC) has generated a total return of 661%. That annualized gain of about 10.7% means that a $10,000 cash outlay would be worth $76,110 right now. This is a result that any investor would be pleased with.
But there's one monster stock that turned a $10,000 initial investment 20 years ago into nearly $5.6 million today. Here's what investors need to know about this dominant industry-leading enterprise.
Looking at the past
Without a doubt, Netflix(NASDAQ: NFLX) is one of the best-performing stocks in the past two decades. It's crazy to think that in 20 years, a single stock could turn early investors into multimillionaires. Investors would certainly struggle to find many businesses that have outperformed this one in recent memory.
The company first launched its streaming service in the U.S. in 2007. The management team was convinced that the internet was going to fundamentally change how consumers watched video entertainment. Netflix achieved huge success early on because it was cheaper and more convenient than traditional cable TV packages. Furthermore, it had very limited direct competition for many years, as it was a disruptive and innovative pioneer.
This resulted in tremendous growth. Between 2010 and 2020, revenue surged over 1,000%, and the subscriber base expanded tenfold. Netflix's notable success spurred an acceleration of the cord-cutting trend, as competing offerings from other media companies entered the market and gave consumers even greater choice.
According to eMarketer, less than 50% of households in the U.S. still have their cable subscription today. But that penetration rate continues declining with each passing year, partly to the benefit of a business like Netflix.
Current situation
Netflix is no longer the scrappy upstart it was two decades ago. This company has now become a global media powerhouse with a presence in more than 190 countries. As of Sept. 30, it counts a whopping 283 million customers, a figure that continues increasing each quarter. And the business is now bringing in almost $40 billion in annual run-rate revenue.
One of the most obvious changes to Netflix's operations, and perhaps something the critics never thought would happen, is that the business is extremely profitable today. The leadership team expects to report a stellar 27% operating margin this year. What's more, free cash flow (FCF) is projected to total $6 billion to $6.5 billion this year.
The growth story isn't over, though. Netflix is finding new ways to attract members and grow its sales base. It has successfully cracked down on password-sharing accounts. And it even introduced a cheaper ad-based subscription tier, something management previously said they'd never do. This option saw its membership base grow 35% quarter over quarter.
Netflix is also leaning into new content opportunities. It started offering video games on the platform in November 2021. And it recently signed deals to show WWE Raw in 2025 and Christmas Day NFL games later this year.
Is it time to buy?
There's not a lot to dislike when taking an objective view of Netflix's fundamentals. The company is posting healthy growth, even at its current scale. And its profitability, particularly from a FCF perspective, is impressive.
But the shares look to be richly valued. They trade at a price-to-earnings (P/E) ratio of 42.7 right now. That's much higher than what the stock sold for in the middle of 2022. And it clearly shows how much optimism the market prices in.
This has been a fantastic stock to have owned in the past 10 or 20 years. However, investors shouldn't expect those monster gains to repeat themselves going forward.
Should you invest $1,000 in Netflix right now?
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Neil Patel and his clients has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
