Sorry, You Missed Netflix Again

We all wish we had just one more shot at the stock we forgot to buy. For some, it's Google or Apple (NASDAQ: AAPL  ) . For others, like Warren Buffett, it was Wal-Mart in the 1980s. The problem is, some investors believe they can time-travel and buy a hot stock anyway, at any price. That's the exact formula for losing money in the markets.

For Netflix (NASDAQ: NFLX  ) , many have already experienced this pain. The stock skyrocketed to just under $300 in mid-2011, when nobody was worried about content costs or Qwikster. Those who placed their long bets anytime around there lost their shirts, as the stock went to almost $50 shortly after its peak. Now, Netflix is back in a big way, having recovered to near-record highs. Are you going to make the same mistake twice?

Too late
Netflix is a great company with a strong management team. It's the leader in streaming services, and it will continue to dominate the space for the foreseeable future. At $60 per share, the company was a steal. At $100 per share, it was a bargain. At today's $242 per share, it's approaching fairy-tale valuations.

At its current price, Netflix is trading at nearly 80 times expected one-year earnings. For every dollar Netflix is set to earn in 2013, you, the investor, are paying them $77 in the expectation that the company will grow phenomenally (as it has) for quite some time. This just isn't a good idea.

"But House of Cards was so good!"
I know, I know. Kevin Spacey is the best fake-congressman in our nation's history. And with Arrested Development coming out in just a week, how could the company not win? It will win. I'm expecting subscribers to continue growing at a high rate as the company turns to in-house content production to battle the rising costs of media, while providing a superior product to users.

As a company, you can't say enough good things about Netflix's recovery from Qwikster-gate. As outlined in a recent article, Reed Hastings executed the perfect apology for a CEO-blunder -- he admitted fault, corrected back to pre-blunder, and then went on to build an even better product.

Look elsewhere, please
Netflix has made its big gain, again, and if you missed the opportunity, I'm sorry. But now is not the time to right your wrong -- this ship has sailed once more. Wait for valuations to come back to Earth, or for the company to start producing Tyler Perry movies in-house. Then, you may get one more chance at stealing Netflix.

As for now, high-profile, tech-hungry investors may want to divert their attention to another star fallen from grace: Apple. The traditional iPhone is nearing the end of its shocking life cycle, as competitors have finally come up with strong alternatives. A fully reworked device can't be far off. In the meantime, the stock has gotten pummeled and is offering investors a piece of one of the world's most innovative companies at less than 10 times earnings. And with $120 billion in cash taken out of the equation, EBITDA is trading at just 6.7 times firm value.

Whether you have faith in the longevity of Apple or not, just please reconsider buying Netflix at these levels.

More Foolish perspective on Netflix
The tumultuous performance of Netflix shares since the summer of 2011 has caused headaches for many devoted shareholders. While the company's first-mover status is often viewed as a competitive advantage, the opportunities in streaming media have brought some new, deep-pocketed rivals looking for their piece of a growing pie. Can Netflix fend off this burgeoning competition, and will its international growth aspirations really pay off? These are must-know issues for investors, which is why The Motley Fool has released a premium report on Netflix. Inside, you'll learn about the key opportunities and risks facing the company, as well as reasons to buy or sell the stock. The report includes a full year of updates to cover critical new developments, so make sure to click here and claim a copy today.


Read/Post Comments (3) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 16, 2013, at 8:29 AM, gettmoney wrote:

    so sad i bought NFLX @$72 but didn't hold...sad,sad..

  • Report this Comment On May 16, 2013, at 8:48 AM, mikecart1 wrote:

    I'm not sad I missed the NFLX ship. I'm more sad that people (shareholders and current customers) feel this is a company that sells something worthwhile - replayed/redistributed TV/movies. NFLX creates nothing and contributes even less to society. No doubt about it I'm bitter but moreso that in 2013, NFLX represents a 'good company'. Sort of reminds me of the local restaurant that buys from the source and resells the same food to customers that is overpriced and tastes a lot worse...

    :)

  • Report this Comment On May 16, 2013, at 12:14 PM, seans887 wrote:

    @mikecart1 I suppose "good" is a relative term, but if your definition of a "good" company is one that "creates" something brand new without repackaging it, I think you will be sorely disappointed by many, if not most, of the stocks available in the market. NFLX provides a valuable service (on demand video viewing from a variety of devices) at a low price point (relative to the status quo of the cable companies) to a market that will only grow over time.

    Also, NFLX has begun to bankroll its own shows, such as House of Cards and the reboot of Arrested Development (both mentioned in the article), so it is in fact "creating" new content.

    I'm not arguing that online video streaming is somehow a noble cause to stand up for - but if we're talking straight economics and value, I don't see how you can NFLX is anything less than "good".

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