At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

And speaking of the best ...
Netflix (Nasdaq: NFLX) fans are all a-quiver over this morning's announcement of an expansion into Latin America, but is there trouble brewing back at the ranch? That's the worry at Dawson James this morning, as the top-ranked analyst comes out with an initiation of coverage on the DVD-by-mail-and-not-just-mail company.

As Dawson reports, Netflix has already seen its monthly average revenue per user decline 8.7% from 2009 to 2010, and things are only going to get worse in 2011 and beyond. For one thing, a cavalcade of competitors is breathing down its neck, in the form of Hulu and Facebook, Amazon.com (Nasdaq: AMZN) and Google (Nasdaq: GOOG). Each of these rivals wants to horn in on Netflix's online streaming business. As their offerings come on line, each holds the potential to pressure Netflix on pricing.

As pricing pressure increases, Dawson warns, Netflix's costs are set to explode. "Acquiring streaming television content will likely continue to become more expensive," says the analyst. Meanwhile, the "inexpensive and unlimited bandwidth" that Netflix depends upon to deliver its "flix" over the "Net," could be going away soon. Level 3 Communications (Nasdaq: LVLT) has announced it's buying Global Crossing (Nasdaq: GLBC); presumably not for the purpose of selling Internet bandwidth cheaper.

In sum, Netflix is getting less cash per user in its customer database and rivals are threatening to steal even these customers away. Meanwhile, the cost of providing movies to the customers that remain will skyrocket. Does this sound like a buy thesis to you?

Let's go to the tape
It doesn't to Dawson, and that's why the analyst says you should sell Netflix today -- and you might want to listen. While Dawson James isn't the most prolific stock picker out there, it has demonstrated a real ability to pick winners and losers over the four years we've been tracking it: 63% of Dawson's recommendations to-date have beat the S&P 500's performance, by an average of 38 percentage points per pick!

While it's true Dawson spends most of its time making biotech picks, this banker is no slouch in the tech arena either. In fact, its all-time best recommendation -- VirnetX Holding (NYSE: VHC) -- operates in the same streaming video industry where Netflix is growing. The analyst also correctly called Level 3 at a time when not too many investors were hot for the stock, and outperformed the S&P 500 by 78 percentage points on the pick. When combined with a demonstrated ability to pick winners in the health-care field, recommendations like these have Dawson James outperforming more than 90% of the investors we track on CAPS.

I think they're going to do it again with Netflix.

Content is king, but valuation matters, too
Don't get me wrong: I love Netflix, the business. I bought into its DVDs-by-mail business model years before Blockbuster bit the dust. (Indeed, my admiration for Netflix was a big reason I predicted the Blockbuster bankruptcy before it happened.) I love the company's video streaming service, too, and find it much more user friendly and intuitive -- and offering vastly more choices -- than the "on demand" offerings of cable providers like Comcast (Nasdaq: CMCSA).

But great as the business looks to me, my decision to buy or sell the stock always comes down to valuation. While I think Netflix's $8-a-month rental service is a great deal, I have to admit that I just don't see the value in Netflix's stock today.

Foolish takeaway
At $285 a share, Netflix now sells for more than 80 times annual earnings. Free cash flow (when factoring in repeated acquisitions to keep its library current) tends to lag reported earnings at the company, so the P/FCF on this company is an even pricier 85. As much as I respect the firm's ability to grow earnings in the past, and Street predictions of 30% annual growth in the future -- that's simply not fast enough to justify the stock price.

While I wouldn't necessarily go out and short the stock today (because an irrationally priced stock can always become more so), I certainly wouldn't buy it.