Netflix's 10-for-1 Stock Split: Time to Buy Before It's Too Late?
Key Points
Netflix began trading at its post-10-for-1 stock split price last Monday.
The stock has gotten cheaper since its split.
Netflix stock today is 50x more profitable today than it was nine years ago.
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It's been a week now since Netflix (NASDAQ: NFLX) stock split its stock 10-for-1, transforming a $1,125-per-share stock into a $112.50-per-share stock in the blink of an eye -- but doing absolutely nothing to change the business. And do you know what? During that week, Netflix stock has gotten even cheaper, falling from $112.50 to close at $110 on Monday, and continuing to fall to just $104 and change today.
And there's still no substantive reason for this.
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Netflix stock just got cheaper.
Image source: Netflix.
What does this mean for you, the investor? Well, let's review. In 2016, Netflix shares cost even more than they do today -- about $115 pre-split. But Netflix was earning a lot less than it is today. Full-year profit was about $187 million in 2016, or about $0.04 per share.
Nine years later, Netflix stock once again costs just a little over $100 per share (post-split, though, so it's really up about tenfold in price). Yet Netflix earned $39 billion last year, or $1.98 per share. That's 50 times more profit today, on a stock that costs only 10 times more.
So effectively, for every $1 you invest in Netflix today instead of nine years ago, you're earning five times more profit. That sounds like a pretty good deal to me. What's more, with the stock falling 7% in price over the past week, this deal is getting even better!
Long story short, if you didn't take advantage of Netflix's bargain price after its stock split, last week, there's still time to do so. Granted, you still need to decide for yourself whether Netflix stock is worth its valuation, currently 42.5 times trailing earnings, with a long-term expected growth rate of 25%. But if you do think Netflix stock is a "buy," then no, it's not "too late" to buy at all.
Indeed, you just got rewarded for waiting... with an even better stock price.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.
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