Key Points

• Netflix is not part of the “Magnificent Seven” but is among the 20 largest U.S. companies by market cap.

• Time in the market has paid off for Netflix investors in the long run, despite a few steep price dips along the way.

• A trillion-dollar market cap isn’t guaranteed, but Netflix is one of the few companies with a clear long-term view of that target.

• 10 stocks we like better than Netflix ›

Once upon a time, not too long ago, Netflix (NASDAQ: NFLX) was a driving force on the stock market.

As a member of the exclusive four-member FANG group, and the FAANG successor, Netflix wrote headlines every time it coughed. It wasn’t a huge entertainment empire at the time, but many investors could see that kind of future for Netflix in 2013 or 2017.

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Things have changed in recent years. Netflix has gone through some hard times, appointed a pair of co-CEOs, changed how it manages and reports the media-streaming business, and more. Around the company, a new industry of streaming platforms with exclusive content has evolved. And after several deep stock dips and recoveries, Netflix now sports a market cap of more than $500 billion.

Will Netflix ever join the trillion-dollar club ofcurrent stock markettitans, or is that an impossible fairy tale? Let’s find out.

Netflix’s place among tech titans

The more things change, the more familiar they become. The modern version of FANG or FAANG is the “Magnificent Seven” group of enormous tech stocks. Netflix is the only FAANG stock that doesn’t appear on the Magnificent Seven list today.

It’s not too far away, though. There are only 10 companies with trillion-dollar market caps, and Netflix is among the 20 largest caps today. From this purely numerical perspective (set theory in action!), Netflix has a better chance than most to join the trillion-dollar club someday.

Market cap roller coaster

Netflix’s lofty perch on a $519 billion market cap seemed quite improbable just a couple of years ago.

The inflation panic of 2022 overlapped with a maturing media-streaming sector, and Netflix adapted to the changes in some uncomfortable ways. Many investors disliked how the company cracked down on account-sharing members at first, and the new subscription plans with built-in advertising but lower monthly fees also rubbed Netflix watchers against the grain.

Netflix’s soaring stock chart went off the rails at that point. The market cap plunged from $306 billion to $74 billion in just a few months.

But I bought more Netflix stock in that dip, much like I did when the Qwikster debacle undermined Netflix’s stock in 2011. That particular tranche of my multi-part Netflix position has now gained a market-beating 215% since March 2022. You’d be even better off if you picked up Netflix shares at the deeper discounts in the weeks and months that followed — but I’m not complaining. Time in the market almost always beats market timing, after all.

Netflix isn’t cheap, but that’s OK

So Netflix has proven that it can post strong shareholder returns in a hurry — at least when starting from a temporary bargain-bin discount.

That’s not the situation today, of course. Netflix shares are trading at the generous valuation of 52 times earnings or 61 times free cash flows. It’s pricey even if you include the company’s high-octane growth in the equation; I can’t call a price-to-sales ratio of 12.5 or PEG ratio of 2.0 “cheap” with a straight face.

The stock may be due for a price correction someday. But I’m not cashing in my Netflix gains with a stock sale, anyway. Remember what I said about time in the market — I have no idea where Netflix’s stock will go next week or next year, but I’m certain that its growth story will add more chapters in the long run.

These data points matter and here are the ones you can skip. Image source: Getty Images.

Why I’m holding my Netflix stock for the long haul

That’s why I’ll sit through the price dips and periods of uncertainty, looking forward to robust stock returns over several years. Nothing is ever a sure thing, especially in the capricious stock market, and Netflix’s future prosperity is no exception. At the same time, this company has proven its mettle so many times, it’s getting hard to keep score.

The constant pursuit of big hits continues. Netflix is trying new ideas like video games, real-world entertainment destinations, and screening its biggest hits on the silver screen now. Some of these bets will pay off and others won’t. Overall, Netflix is earning its place in the next edition of FAANG or Magnificent Seven stocks.

I don’t know when Netflix’s market cap will cross that nice-sounding yet immaterial trillion-dollar goal line, but it probably will get there eventually.

And I expect Netflix’s long-term gains to continue from there.

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Anders Bylund has positions in Netflix. The Motley Fool has positions in and recommends Netflix. The Motley Fool has a disclosure policy.