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

The stock market appears to be in turmoil right now. Many of the hottest tech names are sinking, as investor sentiment sours on the future of the economy, uncertainty builds around an interest rate cut path given inflationary pressures, and spending is being called into question by many of the mega-cap tech names which are driving the economy forward. 

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

Or, could this time be different (or, similar to past crashes)? We’ll have to wait and see. Thankfully, the jury remains out on this front, and there’s plenty to discuss.

One stock I think is particularly compelling given this increasing 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 dive into whether this momentum can be maintained. 

What’s Driving Bullish Sentiment Post-Split?

Road sign showing a split in the road

I should be clear – stock splits don’t change anything fundamentally about a given company. Dividing one’s company up into more shares is almost the same thing as taking a pizza, and cutting it into more slices. 

That said, moving toward a share price that’s no longer in the four-digit range and is in the low-three-digit range can increase breadth in terms of a given company’s investor base. With Netflix stock trading well above $1,000 per share prior to this split, some investors who are only able to buy single shares via their investing platforms may have opted for other names. By reducing the entry cost for such investors, more are able to invest, increasing the potential capital flows into a stock like Netflix.

Additionally, for institutional investors, money managers or large retail investors looking to hedge significant positions (or speculate and trade using options), the price of options tied to Netflix stock decreases dramatically. This can improve the overall liquidity of a given stock, and improve its outlook for those who are bullish on potential growth (and yet another 10x surge into four-digit territory down the road). 

Netflix Stock Continues to Be Driven By Fundamentals

Financial statement with a calculator and stethoscope

The other important aspect 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, is currently being driven by fundamentals.

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

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

Importantly, I think the company’s 8.6% market share of overall television viewing this past quarter is perhaps the most important driver investors should focus on long-term. As new hit series are launched, the company’s durable moat around its business could widen.

Netflix Stock Is Still a Buy

Green buy button on white keyboard

In my view, Netflix’s recent performance and its stock split do improve the company’s outlook for those looking to put capital to work in mega-cap tech names today.

With a reasonable valuation (at least on a relative basis compared to its peers) supported by strong growth and potential catalysts which can accelerate the company’s profit growth, I think NFLX stock ought to remain a top option for those looking to pick stocks within a difficult-to-assess sector of the economy right now.