As Netflix makes a run for $300/share, could this stock actually be cheap?
Netflix is up 165% since the start of the year. Here’s another statistic to think about: one third of North America’s internet usage is eaten up by a portion of Netflix’s 29 million subscribers every night.
Compare that to Hulu, which is one-eighth that size. [Hulu is jointly owned by News Corp, Disney, and Comcast, the parent company of CNBC.] Google’s YouTube is the most popular free video site on the Internet, with its nightly traffic taking up about half of what Netflix does right now. It has just announced plans of offering its own paid subscription service.
The company has made $3.7 billion over the last twelve months reported but only eked out $24 million in net income over the same period.
One investor who is a fan of Netflix is Carl Icahn. The famed financier bought about a tenth of the company several months ago when its stock was trading about $58 per share. Today, it’s around four times as much at $240. By our calculations that’s…. a healthy profit.
"The barriers to entry are very low and its competitors are gorillas in the business,” says Steve Cortes, founder of Veracruz TJM and Talking Numbers contributor. As well, the stock is priced nearly 100 times 2015 earnings. “So, you’re paying through the nose for a company that has a heck of a lot of competition.”
Abigail Doolittle thinks the charts show the stock can go up another 25% to $300 per share, if not more. Starting from 2003, she sees an ascending trend channel which, if you follow it through, doesn’t have resistance until $350 per share. Twice in the past decade, two major falling wedge patterns appeared which Doolittle believes are bullish signals. These falling wedges are “using exhausted selling to support enthusiastic buying moment for $305.”
“I think this stock can go significantly higher for a few years. I think Reed Hastings [the company’s CEO] really knows how to get things done.”
Cortes is quite unconvinced a higher price is justified. “If it goes to $300, I will certainly be shorting Netflix.”