Netflix Inc (NFLX, Financial) has recently been in the spotlight, drawing interest from investors and financial analysts due to its robust financial stance. With shares currently priced at $448.71, Netflix Inc has witnessed a surge of 2.01% over a period, marked against a three-month change of 11.02%. A thorough analysis, underlined by the GuruFocus Score Rating, suggests that Netflix Inc is well-positioned for substantial growth in the near future.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
Netflix Inc's GF Score components are as follows:
- 1. Financial strength rank: 7/10
- 2. Profitability rank: 9/10
- 3. Growth rank: 10/10
- 4. GF Value rank: 5/10
- 5. Momentum rank: 6/10
Each one of these components is ranked and the ranks also have positive correlation with the long term performances of stocks. The GF score is calculated using the five key aspects of analysis. Through backtesting, we know that each of these key aspects has a different impact on the stock price performance. Thus, they are weighted differently when calculating the total score. With high ranks in financial strength, profitability, and growth, and moderate ranks in GF value and momentum, GuruFocus assigned Netflix Inc the GF Score of 93 out of 100, which signals the highest outperformance potential.
Understanding Netflix Inc's Business
Netflix Inc, with a market cap of $198.85 billion and sales of $32.13 billion, primarily operates a streaming video on demand service now available in almost every country worldwide except China. The firm primarily generates revenue from subscriptions to its eponymous service. Netflix delivers original and third-party digital video content to PCs, internet-connected TVs, and consumer electronic devices, including tablets, video game consoles, Apple TV, Roku, and Chromecast. Netflix is the largest SVOD platform in the world with over 220 million subscribers globally. The company's operating margin stands at 17.51%.
Financial Strength Breakdown
According to the Financial Strength rating, Netflix Inc's robust balance sheet exhibits resilience against financial volatility, reflecting prudent management of capital structure. The Interest Coverage ratio for Netflix Inc stands impressively at 7.37, underscoring its strong capability to cover its interest obligations. This robust financial position resonates with the wisdom of legendary investor Benjamin Graham, who favored companies with an interest coverage ratio of at least 5. With an Altman Z-Score of 5.79, Netflix Inc exhibits a strong defense against financial distress, highlighting its robust financial stability. With a favorable Debt-to-Revenue ratio of 0.53, Netflix Inc's strategic handling of debt solidifies its financial health.
Profitability Rank Breakdown
The Profitability Rank shows Netflix Inc's impressive standing among its peers in generating profit. Netflix Inc Operating Margin has increased (75.30%) over the past five years, as shown by the following data: 2018: 10.16; 2019: 12.92; 2020: 18.34; 2021: 20.86; 2022: 17.82. Furthermore, Netflix's Gross Margin has seen a consistent rise over the past five years, as evidenced by the data: 2018: 36.89; 2019: 38.28; 2020: 38.89; 2021: 41.64; 2022: 39.37. This trend underscores the company's growing proficiency in transforming revenue into profit. Netflix Inc's strong Predictability Rank of 5.0 stars out of five underscores its consistent operational performance, providing investors with increased confidence.
Growth Rank Breakdown
Ranked highly in Growth, Netflix Inc demonstrates a strong commitment to expanding its business. The company's 3-Year Revenue Growth Rate is 16.2%, which outperforms better than 84.43% of 957 companies in the Media - Diversified industry. Moreover, Netflix Inc has seen a robust increase in its earnings before interest, taxes, depreciation, and amortization (EBITDA) over the past few years. Specifically, the three-year growth rate stands at 19.2, and the rate over the past five years is 24.2. This trend accentuates the company's continued capability to drive growth.
Conclusion
Given the company's robust financial strength, impressive profitability, and strong growth metrics, the GuruFocus Score Rating highlights Netflix Inc's unparalleled position for potential outperformance. This analysis underscores the importance of comprehensive financial evaluation in making informed investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
