The stock was up almost 5% yesterday, on a down day, closing at $187.88, with a P/E of 70.90 -- that's 71 years times earnings folks!
Is that sensible? Investors are saying who cares? And the analysts are supporting them. The fact that analysts have a horrible track record and that the stock is highly speculative has become irrelevant.
We have seen this before and we will see it again. This phenomenon is like a reoccurring nightmare as "investors" will march forward confidently all the way to a fall. Then they will kick themselves for having been mesmerized once more by the sirens' call. I even read the headline "When Valuation Doesn't Matter" on another site --- really?
I think it does matter and betting on Netflix at the current valuations is pure speculation, some would even say, nuts.
The price to cash-flow is 52. The average P/CF for the market is about 10, so NFLX is five times the market average. But it gets even worse. Where a price to book around 1.0 is desirable, and there are cases where up to five times that for some growth stocks might be explainable, I cannot even come up with the remotest rationale for a P/B of 44 and even higher in the most recent quarter at 51. That is ten times what would be a high price to book. If you need more evidence for comparison, another high flyer, Salesforce.com (CRM), only has a P/B of 10.56.
Certainly there is the possibility that the stock could climb on wishful thinking and further speculation, but I do not see why any seasoned investor or the average guy in the street would not be able to find better odds somewhere else. It won't be long before earnings are reported and I fear investors will see a drop in the stock price even if the company exceeds expectations.
Sheldon Liber is registered architect and the CEO of Chasing Value ™ Asset Management, Inc., a small private investment company. He writes the columns Chasing Value™ and Serious Money and is on twitter as ChasingValue. Disclosure: He does not own shares and/or options of NFLX.