Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
It’s only natural that many investors, especially those who are new to the game, prefer to buy shares in ‘sexy’ stocks with a good story, even if those businesses lose money. And in . found that it is ‘quite common’ for investors to lose money by buying into ‘pump and dump’ schemes.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Netflix (NASDAQ:NFLX). While profit is not necessarily a social good, it’s easy to admire a business than can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Fast Is Netflix Growing Its Earnings Per Share?
Over the last three years, Netflix has grown earnings per share (EPS) like bamboo after rain; fast, and from a low base. So I don’t think the percent growth rate is particularly meaningful. As a result, I’ll zoom in on growth over the last year, instead. Like the last firework on New Year’s Eve accelerating into the sky, Netflix’s EPS shot from US$1.55 to US$2.90, over the last year. You don’t see 87% year-on-year growth like that, very often.
Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Netflix’s EBIT margins were flat over the last year, revenue grew by a solid 30% to US$17b. That’s progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
While we live in the present moment at all times, there’s no doubt in my mind that the future matters more than the past. So why not check this interactive chart depicting future EPS estimates, for Netflix?
Are Netflix Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$163b company like Netflix. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$2.5b. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
Does Netflix Deserve A Spot On Your Watchlist?
Netflix’s earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. At times fast EPS growth is a sign the business has reached an inflection point; and I do like those. So yes, on this short analysis I do think it’s worth considering Netflix for a spot on your watchlist. If you think Netflix might suit your style as an investor, you could go straight to its annual report, or you could first check our discounted cash flow (DCF) valuation for the company.
Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.