With its stock down 8.1% over the past month, it is easy to disregard Netflix (NASDAQ:NFLX). However, a closer look at its sound financials might cause you to think again. Given that fundamentals usually drive long-term market outcomes, the company is worth looking at. In this article, we decided to focus on Netflix's ROE.
Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. In short, ROE shows the profit each dollar generates with respect to its shareholder investments.
30% = US$6.4b ÷ US$21b (Based on the trailing twelve months to March 2024).
The 'return' refers to a company's earnings over the last year. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.30 in profit.
Why Is ROE Important For Earnings Growth?
So far, we've learned that ROE is a measure of a company's profitability. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming all else is equal, companies that have both a higher return on equity and higher profit retention are usually the ones that have a higher growth rate when compared to companies that don't have the same features.
Netflix's Earnings Growth And 30% ROE
To begin with, Netflix has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 12% also doesn't go unnoticed by us. Under the circ*mstances, Netflix's considerable five year net income growth of 24% was to be expected.
We then performed a comparison between Netflix's net income growth with the industry, which revealed that the company's growth is similar to the average industry growth of 23% in the same 5-year period.
Earnings growth is an important metric to consider when valuing a stock. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is NFLX worth today? The intrinsic value infographic in our free research report helps visualize whether NFLX is currently mispriced by the market.
Is Netflix Efficiently Re-investing Its Profits?
Netflix doesn't pay any regular dividends currently which essentially means that it has been reinvesting all of its profits into the business. This definitely contributes to the high earnings growth number that we discussed above.
Summary
Overall, we are quite pleased with Netflix's performance. Particularly, we like that the company is reinvesting heavily into its business, and at a high rate of return. Unsurprisingly, this has led to an impressive earnings growth. With that said, the latest industry analyst forecasts reveal that the company's earnings growth is expected to slow down. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Currently there's no upside potential for NFLX, based on the analysts' average price target. Is NFLX a Buy, Sell or Hold? Netflix has a consensus rating of Moderate Buy which is based on 23 buy ratings, 12 hold ratings and 1 sell ratings.
Netflix slumped as one of the bigger drags on the benchmark S&P index and Nasdaq after the video streaming company's second-quarter revenue view fell short of analysts' expectations while the company also unexpectedly said it would no longer provide subscriber counts.
The 32 analysts with 12-month price forecasts for Netflix stock have an average target of 626.09, with a low estimate of 370 and a high estimate of 800. The average target predicts a decrease of -8.69% from the current stock price of 685.67.
April 19 (Reuters) - Netflix shares fell on Friday as its plan to stop sharing subscriber numbers from 2025 stoked growth worries, with analysts warning that rivals may follow the step by scrapping the key metric on the streaming industry's health.
Based on data from the streaming guide JustWatch.com, Netflix has lost 13% of its streaming video-on-demand (VOD) market share to competitors since January 2020.
Netflix Inc. shares tumbled the most in two years on Friday as a weak forecast for revenue and a warning that the streaming giant will stop reporting subscriber numbers in 2025 overshadowed an otherwise strong start to the year.
Key Statistics. The Leverage Shares -1x Netflix ETP seeks to track the iSTOXX Inverse Leveraged -1X NFLX Index, which is designed to provide -1x the daily return of Netflix, Inc. stock (adjusted to reflect the fees and inherent costs and revenues of shorting).
Since Netflix is a publicly traded company, you can buy shares of Netflix in any brokerage account. If you don't have a brokerage account, there are plenty of top-rated brokers and trading platforms to consider.
So, if you had invested in Netflix ten years ago, you're likely feeling pretty good about your investment today. A $1000 investment made in March 2014 would be worth $9,728.72, or a gain of 872.87%, as of March 4, 2024, according to our calculations. This return excludes dividends but includes price appreciation.
At the end of the first quarter of 2024, the company had 269.6 million paid subscribers globally. NFLX is a #3 (Hold) on the Zacks Rank, with a VGM Score of B. Momentum investors should take note of this Consumer Discretionary stock.
Netflix is in good financial shape. It ended 2023 with a net debt/EBITDA ratio under 1.0, holding about $7 billion in cash and $14.5 billion in total debt. More importantly, we believe the years of cash burn are behind the firm.
Amazon has a consensus rating of Strong Buy which is based on 42 buy ratings, 0 hold ratings and 0 sell ratings. The average price target for Amazon is $221.55. This is based on 42 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
Netflix, Inc. Common Stock is expected* to report earnings on 07/18/2024 after market close. The report will be for the fiscal Quarter ending Jun 2024. According to Zacks Investment Research, based on 11 analysts' forecasts, the consensus EPS forecast for the quarter is $4.7.
The company's first-quarter earnings report, which included a record operating margin, its fastest quarterly revenue growth since 2021, and much better subscriber growth than expected, shows why the stock looks like a screaming buy right now. Here are a few of the highlights.
Introduction: My name is Neely Ledner, I am a bright, determined, beautiful, adventurous, adventurous, spotless, calm person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
