Netflix(NASDAQ:NFLX) is one of the largest providers of video streaming service. Charging $7.99 a month to subscribers in North America, Latin America, the U.K. and soon Germany, France, Austria, Switzerland and Luxemburg, patrons of this service can watch unlimited videos and TV shows. They also have access to NFLX's larger selection of DVDs. This is a disruptive technology, but NFLX has had growing pains.
Netflix needs to entice more subscribers in order to grow their monthly revenue stream. Buying content is costly and Netflix has begun to develop their own content with hit shows such as Orange is the New Black, House of Cards and Lilyhammer. Millions have created or renewed their accounts to watch these shows, which is great for NFLX.
- Warning! GuruFocus has detected 4 Warning Signs with NFLX. Click here to check it out.
- NFLX 15-Year Financial Data
- The intrinsic value of NFLX
- Peter Lynch Chart of NFLX
Trading at 17 times its book value, with 790 times its free cash flow and 136 times its earnings, I think its safe to say that the company is a little overvalued. The price of the stock is very erratic, as investors rightfully fear that NFLX wouldn't be able to keep their user base amused. I like NFLX, just not as an investment. My wife and I are guilty of binge watching shows and do think that it's the most convenient, and cost efficient, way for consumers to watch TV and movies. We actually don't own a TV and only have internet service because of NFLX! But with most companies that offer comfort and convenience to customers, the same can not be said about their shareholders.
Value investors should steer clear of this stock, and growth investors should proceed with caution. Netflix can drop 5% and go up 6% before dropping another 3%, the way it's acted within the last three months.