How in the world can Cramer recommend Netflix @ $298.73/share?

I watched portions of Jim Cramer’s Mad Money show tonight.  He was positive on Netflix (NFLX).  I wondered to myself how much Netflix earned per share and if it paid a dividend.

Sadly, Netflix does not pay a dividend.  It has never paid a dividend.

Earning power:  NFLX has earned an average of $1.80 per share over the past five years.

            EPS       Net inc.             Adj. EPS

2006     $0.71    $49 M                $0.93

2007     $0.97    $67 M                $1.27

2008     $1.32    $83 M                $1.57

2009     $1.98    $116 M              $2.19

2010     $2.96    $161 M              $3.04

Five year average earnings equals $1.80 per share

Consider buying at or below $21.60 per share (12x average earnings)

Consider selling at or above $36.00 per share (20x average earnings)

The market price of Netflix is $298.73 is trading at 165.96 times average earnings.  This is delusional speculation.  Netflix would not be a value stock unless it was earning $24.98 per share.  ($298.73/12 = $24.98)

Balance sheet: Netflix has a weak balance sheet.  Shareholder equity peaked in 2007.


Book value per share: $5.09

Price to book value: 58.69 (Oh my gosh!!)

Current ratio: 1.47 (over 2.0 is good)

Quick ratio: 0.70 (over 1.0 is good)

Conclusion: Netflix is speculatively priced.  Don’t buy it.

Disclosure: I don’t own Netflix (NFLX).

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Published in: on July 13, 2011 at 11:49 pm  Leave a Comment  

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