Netflix Valuation Unsustainable

Netflix (NFLX) is one of the hottest stock on wall street these days and why not when it has gone up 5 times from it's low of $53 in one year. The stock closed at $261 on 22nd July with  52 week high low for the stock at $270.3 and $52.8 respectively. 

For the second quarter of current financial year Netflix reported $1.07 billion of revenue and an earnings per share of 49 cents. For the year 2013 the company is expected to report an EPS of around $2.0 on revenues of approximately $4.3 billion. 

At current market price of $261, the common stock is valued at a PE multiple of over 130 times. With $14.7 in market value the stock is trading at 3.4 times 2013 sales and more than 13 times Price to Book. 

Netflix one year chart

The current valuation of Netflix is discounting huge growth in subscribers, revenues and profits going forward as a result of new season of "Arrested Developments". Apple Inc Stock lost its ground due to the same kind of lofty expectations which made the stock crash from $700 to $400 in matter of weeks when company failed to deliver on those high expectations. The risk of same story getting repeated in case of Netflix is also very high as the valuations are way to high for a risky and unpredictable business model that Netflix depends upon.

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