If you're a hard-core Netflix (Nasdaq: NFLX) fan like my fellow duelist Anders Bylund, wondering how anyone could possibly be bearish on the stock, let me start by saying this: I'm a value investor. As such, I like three things: cheap stocks, cheap stocks, and, well, I think you get the picture.

Does Netflix fit the bill? Let's take a look:

Valuation Metric

Netflix

S&P 500 Average

Revenue multiple 5.7 2.7
Price-to-book-value 43.1 3.5
Trailing price-to-earnings ratio 80 23.6
Forward price-to-earnings ratio 54.2 17.9
EBITDA multiple 38.6 11.1
PEG ratio 1.83 1.86

Source: Capital IQ, a Standard & Poor's company. P/E is before extraordinary items.

Maybe I'm missing something here, but based on this table, it looks like we'd have a pretty tough time calling Netflix a cheap stock. Sure, the bulls will be quick to jump at the PEG ratio, but even there, the multiple doesn't look cheap -- simply fair. And bear in mind that to get to that PEG ratio, you have to believe that Netflix can grow 30% per year over the next five years.

Giving the benefit of the doubt
But hey, I'm a reasonable guy. Let's suspend disbelief for a moment and assume that Netflix can grow 30% per year over the next five years. After all, it managed that growth rate over the past five years.

Alas, even if Netflix can grow that fast, the stock will face a strong cross-current as investors lower the valuation. P/Es of 80 are like a man with two left feet on a high-wire -- bound to fall.

Five years ago, among companies that, like Netflix, had a market cap of $10 billion or above, nine companies boasted a P/E above 75. Six of those companies have managed positive earnings-per-share growth over the past five years. Take a gander at what happened to their valuations:

Company

Market Cap Five Years Ago

P/E Five Years Ago

P/E Now

Trailing Five-Year Earnings-Per-Share Growth

Google $120 billion 80.1 21.2 36.1%
DIRECTV $21 billion 75.2 18.8 62.3%
Symantec (Nasdaq: SYMC) $18 billion 99.6 23.9 35.4%
Biogen Idec (Nasdaq: BIIB) $15 billion 96.4 20.9 53.2%
CA Technologies (Nasdaq: CA) $15 billion 77.6 16.5 29.2%
Celgene (Nasdaq: CELG) $13 billion 214.2 30 60.4%

Source: Capital IQ, a Standard & Poor's company.

A quick glance at the growth column shows that these companies kicked in some serious jets over the past five years. But heady growth or not, investors knocked down every single one of those valuation multiples, by significant amounts.

The average of the "P/E Now" column comes out to 22. What would happen to Netflix's stock if the company grew earnings per share at 30% per year, and its P/E multiple dropped to 22? Five years from now, investors would be sitting on a sweet, sweet 3% return. Total. (That works out to 0.5% per year).

And if serious competition from the likes of Amazon.com (Nasdaq: AMZN), Hulu, Google, or Apple (Nasdaq: AAPL) actually does materialize, and Netflix doesn't notch 30%-per-year growth? Well, then, kiss that 3% goodbye.

In short, when it comes to Netflix, the risk/return on the stock is nowhere near compelling.

See fellow Fool Anders Bylund's bull case for Netflix, then come back tomorrow for my rebuttal to Anders' bullish argument.

Google is a Motley Fool Inside Value pick. Google is a Motley Fool Rule Breakers pick. Apple, Amazon.com, and Netflix are Motley Fool Stock Advisor selections. Alpha Newsletter Account, LLC has bought puts on Netflix. Motley Fool Options has recommended a bull call spread position on Apple. The Fool owns shares of Apple, and Google. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Fool contributor Matt Koppenheffer does not have a financial interest in any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool or on his RSS feed. The Fool's disclosure policy prefers dividends over a sharp stick in the eye.