Why Netflix Still Looks Like a Buy After Its 10-for-1 Stock Split

The stock market seems to be in crisis right now. Many of the most popular tech names are sinking, as investor confidence about the future of the economy deteriorates, uncertainty builds around an interest rate cut path given inflationary pressures, and spending is being questioned by many of the mega-cap tech names that are driving the economy.

• Netflix (NFLX) announced a 10-for-1 stock split and is now trading around $113.

• Netflix reported revenue growth of 17% to $11.5 billion last quarter.

• Netflix captured an 8.6% market share of total television viewing last quarter.

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This bearish attitude presents investors with an intriguing dilemma. Is now the time to accept this selling pressure and wait for a rebound? After all, in recent years, have V-shaped recoveries become the norm?

Or could this time be different (or similar to previous accidents)? We’ll have to wait and see. Fortunately, the jury is still out on this front and there is much to discuss.

One action that I think is particularly compelling given this growing uncertainty is netflix (NASDAQ:NFLX). The streaming giant just announced a 10-for-1 stock split and is now trading around the $113 level at the time of writing (up 3% on the day).

Let’s analyze whether this momentum can be maintained.

Traffic sign showing a division in the road

I should be clear: stock splits don’t change anything fundamental about a given company. Splitting the company into more shares is almost the same as taking a pizza and cutting it into more slices.

That said, moving toward a share price that is no longer in the four-digit range and is in the low triple-digit range can increase breadth in terms of a given company’s investor base. Since Netflix stock was trading well above $1,000 per share before this split, some investors who can only buy individual stocks through their investment platforms may have opted for other names. By lowering the cost of entry for such investors, more people can invest, increasing potential capital flows into a stock like Netflix.

Additionally, for institutional investors, money managers, or large retail investors looking to hedge large positions (or speculate and trade using options), the price of options tied to Netflix stock declines dramatically. This can improve the overall liquidity of a given stock and improve its prospects for those who are optimistic about potential growth (and another 10x rally into four-digit territory in the future).

Financial statement with calculator and stethoscope.

The other important aspect that I think is important for investors to focus on when it comes to Netflix is ​​the fact that this split and the company’s overall capital appreciation profile are currently driven by fundamentals.

Netflix has reported very strong revenue and profit growth, with the company’s recent earnings highlighting 17% revenue growth to $11.5 billion this past quarter. And while some investors and analysts have pointed to foreign tax and currency charges as potential headwinds, the company’s incredible performance has been able to overshadow these concerns and lead to a continued rise in the stock price following this split.

As long as Netflix can continue to monetize the millions of eyeballs on its platform well and continue to produce world-class content around the world (at increasingly better prices, due to the company’s geographic reach), there is a lot to like about this high-margin business.

Importantly, I think the company’s 8.6% market share of total TV consumption over the last quarter is perhaps the most important factor investors should focus on in the long term. As new hit series are launched, the company’s long-lasting moat around its business could widen.

Green buy button on white keyboard

In my opinion, the recent performance of Netflix and its stock split improves the company’s prospects for those today looking to put capital to work in mega-cap technology names.

With a reasonable valuation (at least on a relative basis compared to its peers) backed by strong growth and potential catalysts that can accelerate the company’s earnings growth, I believe NFLX stock should remain one of the best options for those looking to pick stocks within a difficult sector of the economy to value right now.

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