In today's video we're going to be talking about one of the hottest stocks in the market.
Over the past 5 years it has gone up a mere 903%.
So obviously this leaves a lot of sheep I mean investors flocking towards the stock
not wanting to miss out on any returns.
Is Netflix stock a Buy, let's dig a little deeper, we'll talk about the basics of the
stock, the business model, fundamentals, risks and whether I consider it a buy.
Welcome back all subscriber I'm very grateful to have you apart of the channel.
I'm going to aim to do more stock analysis videos like this every month just because
I enjoy analysing different shares and seeing people's different opinions on them.
I know a lot of people have been interested in Netflix stock.
The companies even got it's own damn saying known around the world, Netflix and Chill.
I was going to use it in the thumbnail but nah to cheesy.
But let's start with talking about the company itself and what's happening with Netflix.
Netflix is an entertainment company founded in the United States that provides streaming
media, video-on-demand online, and DVD by mail.
You can pretty much cross out that last one because no-one under the age of 50 uses DVD
by mail.
Netflix allows people to stream a bunch of different videos.
In 2012 they started producing their own content which was a big thing for the firm.
And since then they've produced a massive amount of their own content.
2 years ago in 2016 they produced an estimated 126 original series and we can only assume
they have produced a greater number then that since then.
Netflixes business model is in essence beautiful, harnessing the power of the internet.
They operate on what's known as a subscription based model, meaning users pay a monthly fee
to subscribe and in return they get too watch the content on Netflix.
The thing about the business model is they have pretty much no extra fees for an additional
subscriber.
Meaning the more subscribers Netflix gets the more effective the business model becomes.
And the business model is pretty effective at the moment with over 125 million subscribers
as of April 2018.
So at the moment all flowers and rainbows.
But I'm going have to start being real with you guys now.
There are a number of things that would make me feel very very edgy if I were a Netflix
shareholder.
Let's start with the companies debt.
If we look at their long-term debt its just been increasing year and year out.
It's gone from 2.3billion in 2015 to 6.5 billion in 2017 so almost triple.
But their total long-term debt and obligations racks up to a massive number, over 20 billion.
Now they're making new content yes.
And some of it is successful.
But they're borrowing a truck load to make this new content and that makes things extremely
risky.
All Netflix shareholders better hope the original content becomes more successful and brings
in more money.
I mean the risk with holding all that debt is rising interest rates which could really
put the company under a lot of pressure.
Now let me know in the comments if you think it's a smart idea for Netflix to borrow
this much money.
I know Buffett certainly wouldn't think so and to be honest neither do I.
Let's move on to something else.
The numbers.
1 share of Netflix is selling for a price of $349 and for that share you'll get a
whole 1 dollar 25 in return.
This gives it an insane P/E ratio of 279.
What this means is the stock earnings better well grow.
And to be fair it has been growing well from 122 million in 2015 to 558 million in 2017.
But remember this was a period when the economy and the stock market did really well.
What happens when the economy starts flattening out or decreasing that we'll talk about
soon.
Now I wanted to make this point.
The average p/e ratio in the U.S stock market over time is around 15.
For Netflix to get this average they need to grow their earnings from $1.25 to $23.3.
That's just to be on average terms.
That's a tonne of growth to hope for, I'll leave it for you to decide if you think they
can do it.
Risks Economic Cycle The other thing is we are in the late part
of the economic cycle.
This is the part of the cycle where discretionary stocks thrive because consumers have a lot
of money.
And what most people do when they get extra money is find a way to spend it.
Monkey see, monkey want.
Its what most of the world does.
They've never heard of investing and they don't want to hear about because it means
you have to save some money.
Most people on the channel hopefully won't be like this but I'm sure a lot of their
friends do.
Now Netflix is a great thing for people to buy when they have left over money.
Which is a reason why Netflix has done so well.
Tell me what happens when there is a recession and people don't have this leftover money.
They drop things that they don't need.
Things like Netflix subscriptions.
What happens next is Netflix reports bad earnings and investors run for the hills.
Panic happens and the stock drops.
Maybe then I'll consider buying it but until then I'm good.
Netflix is a stock that has high risks associated with it at the current price they're selling
at.
That is my main issue with the stock.
Also their high amounts of debt.
I'm staying the heck away from it.
Does that mean Netflix stock will drop.
Of course not.
No-one knows for sure what will happen, especially in the short term.
I could definitely see Netflix report great earnings in the next couple of quarters and
the stock increase dramatically.
But in the long term its just too risky and the rewards aren't great enough for me to
take that risk.
The last thing I wanted to point out are the types of investors who own Netflix.
As you can see mainly mutual fund holders.
And this is a big reason why I advocate for picking individual stocks.
Because if you go with active management or index funds, your going to be highly exposed
to risky stocks like Netflix.
If you want to hold a high percentage in stocks like these then go ahead.
But I'd prefer to pick individual stocks.
That's it for today's video.
The comment section is waiting below so that you guys can let me know if I'm wrong or
right about Netflix.
I love seeing people's different comments, I love seeing people's different opinions.
That way we get a fuller picture of the stock.
Let me know your thoughts below.
Don't forget to drop a like to see more videos these.
It really helps the channel.
Also if you want to learn more about investing then subscribe to cooper academy and we can
talk more about different stocks.
Till next time everyone, bye.
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