Netflix (NASDAQ: NFLX) has been a Wall Street darling since 2015, and it is hard to believe it went public in 2002 at $1.21 per share.
Currently priced at $390, Netflix is now one of the world’s ten 10 largest web companies based on revenue. The streaming service has become so popular, consumers are using the it to watch online content more than other platform aside from cable television. Some surveys show Netflix has even surpassed cable in terms of viewership. The fact that Netflix is particularly popular amongst the widely-coveted millennial cohort makes investors salivate over the stock that much more.
Prospective Netflix investors are likely pondering whether this is the right time to scoop up some shares. Netflix bears are adamant the stock is overvalued. The stock has doubled in price this year alone. Its P/E ratio is a colossal 261.74. Furthermore, Netflix has a beta of 1.36. This is a high-flying, volatile stock that might be egregiously overvalued. If you take pride in being a value investor, Netflix does not belong in your portfolio.
Prospective investors should be aware of the fact that the majority of Netflix’s exclusive content leaves much to be desired. Check out Netflix’s original programming, and you will find a seemingly endless stream of average to below average content. Netflix is rolling out original content at breakneck speed with little regard for quality. The company has released a whopping 450 hours of original content for viewers in the United States in the second quarter of 2018 alone. Ask Netflix users about these original programs and many will report scrolling right by them in favor of better-known movies, TV shows, documentaries and other streaming content.
Though some of the popular streaming service’s original content has proven successful, most cannot match the quality of Netflix originals like 13 Reasons Why and Unbreakable Kimmy Schmidt. The vast majority of the company’s exclusive content is incredibly disappointing. This is cause for concern as Netflix has committed upwards of $8 billion for original content.
Plenty of Netflix investors are willing to admit the stock is currently overvalued, yet that does not mean the price will stagnate or decline. Netflix executives deserve credit for continuing to expand the company’s boundaries, add diverse streaming content and appeal to audiences of all varieties. Netflix is even going as far as creating original content for markets outside of the United States. Take a look at Netflix’s library, and you will see everything from traditional movies to TV series, unscripted shows, non-English content and comedy specials. The wide range of content is a large part of the reason why the company’s user base will expand from 83.6 million at the end of this year to approximately 255 million in the next decade.
Netflix shares have increased more than 150 percent in 2018. Analysts predict about one million more United States residents will subscribe to the streaming service each month through the remainder of the year. The real growth is in the international sector where new subscriptions will likely outpace domestic additions at a 5:1 ratio.
Though Netflix is certainly a growing business, it is absurdly overvalued at its current price. As noted above, the company has wasted a considerable amount of time and money creating original content that has proven underwhelming. If you own Netflix, consider selling a portion of your stake. If you have been sitting on the sidelines, stay right there until Netflix reaches a more reasonable valuation.