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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