Netflix
So I was writing a post today about Netflix and how crazy it is as a stock. This is type of thing is exactly why there is messed up perception of the stock market.
History, from 2007 - Early 2010 it was at $20 and went to about $55. That's pretty typical of a tech stock that takes off. The $1.02 EPS doubles $2.05 and that makes sense that the price of the shares would double. Then it goes from $2.05 to $3.06 and the price is now $190 by the end of 2010. It's high is just under $300 in Aug of 2011 and the EPS is estimated at $4 for 2011. Pause here. Do the math. The P/E is 75! It's pretty crazy. Flash forward... the stock has been downgrade and was trading at about $70 at the end of 2011. That would assume that if EPS is $4 it's trading at about a 19 times P/E. Still high but acceptable. Now the question is what's the expected EPS? According to the Zack's research, about 50 cents for 2012. Again we're looking at a stock trading at a 200x P/E.
Situations like this really bother me. I haven't hear the specific earnings guidance for this company but even if the Zack's should double their estimate, the P/E is still 100x. Why do people still buy at this ridiculous price? Even when it was at $70 it's a terrible price. There are a few types of people that buy stuff like this.
1) Sheep (ignorant) - I just hope these people aren't using money they can't afford to lose.
2) Gamblers (Greedy) - This is their choice I guess.
3) Thieves (Greedy and Smart) - I guess someone has to be one of these people.
It's hard for me to look at this and not want to be #3 but I think I'm still not skilled enough. I'd just end up being in #2. Maybe I will take a course in this one day.
I was trying to think of something spiritual to mash in there but I'd rather not. Sometimes it's enough to reflect on ourselves and ask if we're ignorant, greed or just a jerk.
History, from 2007 - Early 2010 it was at $20 and went to about $55. That's pretty typical of a tech stock that takes off. The $1.02 EPS doubles $2.05 and that makes sense that the price of the shares would double. Then it goes from $2.05 to $3.06 and the price is now $190 by the end of 2010. It's high is just under $300 in Aug of 2011 and the EPS is estimated at $4 for 2011. Pause here. Do the math. The P/E is 75! It's pretty crazy. Flash forward... the stock has been downgrade and was trading at about $70 at the end of 2011. That would assume that if EPS is $4 it's trading at about a 19 times P/E. Still high but acceptable. Now the question is what's the expected EPS? According to the Zack's research, about 50 cents for 2012. Again we're looking at a stock trading at a 200x P/E.
Situations like this really bother me. I haven't hear the specific earnings guidance for this company but even if the Zack's should double their estimate, the P/E is still 100x. Why do people still buy at this ridiculous price? Even when it was at $70 it's a terrible price. There are a few types of people that buy stuff like this.
1) Sheep (ignorant) - I just hope these people aren't using money they can't afford to lose.
2) Gamblers (Greedy) - This is their choice I guess.
3) Thieves (Greedy and Smart) - I guess someone has to be one of these people.
It's hard for me to look at this and not want to be #3 but I think I'm still not skilled enough. I'd just end up being in #2. Maybe I will take a course in this one day.
I was trying to think of something spiritual to mash in there but I'd rather not. Sometimes it's enough to reflect on ourselves and ask if we're ignorant, greed or just a jerk.
posted by enochtang at
4:38 PM
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