Netflix Bubble 2.0.
Netflix (NASDAQ:NFLX) stock has rocketed past a previous all-time high of $304.79 this morning. According to some, this represents the perfect opportunity to short the stock since now the stock has reached a "double-top" in its chart. With a P/E currently north of 370 and an $18.1 billion valuation, is now the time to declare "Netflix Bubble 2.0?"
Personally, I will readily admit that I have no idea how the stock is most likely going to move after this new all-time high has been reached. (No one truly knows.) I know it's hard, but ignore the "all-time high" number and "double top" rhetoric and simply examine the facts about Netflix. Netflix is truly a transformative company, but I believe that sooner or later its valuation will catch up to it sometime. Therefore, this indeed might be the start of Netflix Bubble 2.0 based purely on valuation. But, after NFLX potentially drops like a rock and all of the less resilient/patient investors have gotten out of the stock, I think there will be a great investment opportunity. I would be tempted to load up on shares depending on how low the stock price goes.
Think about it. Netflix is not a fad. Netflix has changed how we watch movies and TV shows. Netflix is making the concept of "cable-cutting" remotely feasible. If the stock falls to ~$200, ~$100, or even a total crash to the ~$50's-$70's, wouldn't that constitute a big overreaction? Of course, if that reaction is because of inherent flaws in Netflix's business model, rising competition, other unforeseen factors, etc. then that would be justified. But consider that even at this level NFLX is trading at 4 times price/sales and 15 times price/book with a forward P/E of 92. Any dramatic fall would bring NFLX down to a buy opportunity, at least in my book.
What do you think? Is Netflix due for a market correction? Or has Netflix rocketed past the point of no turning back?