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Netflix stock has doubled over the past five years, and it could repeat that performance.
The pending deal to acquire Warner Bros. for $82 billion will cement its lead in the entertainment industry.
Analysts expect the company's earnings per share to grow 24% annually, before factoring in the acquisition.
Netflix (NASDAQ: NFLX) stock continues to compound in value for long-term shareholders. Shares have more than doubled in value over the last five years, which included a steep drawdown in the 2022 bear market.
The company is already dominant within the streaming industry with over 300 million subscribers. However, it's making a bold move to extend its lead with the pending acquisition of Warner Bros. Discovery at an $83 billion total enterprise value. Best of all, the stock could be considered undervalued heading into 2026, and it is well-positioned to deliver market-beating returns over the next five years.
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Image source: Getty Images.
The stock trades at a forward price-to-earnings multiple of 31 based on next year's consensus earnings estimate. Before the Warner Bros. deal was announced, analysts were projecting the company's earnings per share to grow at an annualized rate of 24% over the next several years. Assuming Netflix delivers on these expectations -- and its earnings multiple holds at the current level -- that is enough earnings growth for the stock to double within three years.
Though Netflix is a household name at this point, it has substantial untapped growth opportunities. It captures only 10% of TV viewing time in its largest market. This low share presents opportunities to increase engagement and achieve steady growth in revenue and earnings. Expanding its library of content with Warner Bros.' treasure trove of films, including The Wizard of Oz, Harry Potter, Game of Thrones, and other Hollywood classics, will put Netflix on an even higher pedestal in the entertainment industry.
Investors who can patiently hold Netflix stock for the next five years and beyond should see market-beating returns, given the stock's attractive valuation relative to its potential business growth.
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John Ballard has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Netflix and Warner Bros. Discovery. The Motley Fool has a disclosure policy.
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