Cramer Believes That Netflix Inc (NFLX) Might Overpriced With Current Price Level

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In the face of stock market crash on Thursday, 16th October, 2014, Netflix Inc (NASDAQ:NFLX) was one of the companies that registered a steep decline, although its downward momentum was regarded as being slower than many other names which had tumbled on that day. The big question is whether this decline is a short-term correction or a long-term phenomenon and financial experts vary in their opinions on this topic.

Richard Greenfield, an analyst with BTIG Media & Technology, expressed a strong viewpoint on CNBC that in spite of having presented a disappointing quarter earnings result, Netflix was definitely a buy where investors were concerned. He based this line of thought on several factors, one amongst which was a constant improvement in content. According to him, the mistake that most people were making at this juncture entailed looking back when they should be looking forward.

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Considering that competition in this niche is on the rise with some of the noteworthy names being HBO, Amazon, Time Warner and CBS, Greenfield felt that the fragmentation of market which is imminent would be better for customers. Given the popularity of streaming services, this would result in a paradigm shift towards providers and Netflix Inc (NASDAQ:NFLX) being a giant player was sure to gain from the wave.

However, Jim Cramer, also of CNBC, put forth an opinion which was totally to the contrary when he said that a ‘cult stock’ that Netflix has always been, it has been unable to satisfy the high expectations that Americans have had from it. His following comment pertains to the same –

“Netflix has been the consummate high-flier and you really couldn’t justify its sky-high price-to-earnings multiple based on the company’s 33 percent growth rate.”

Further, since Netflix inc (NASDAQ:NFLX) has failed to add to its customer base like it had hoped for has caused ripples of disappointment amongst investors who, Cramer says, are likely to buy only if it plunges to lower levels. Summing up the market sentiment, Cramer said –

“In my mind, the big question here is simple: was this disappointment caused by a one-time price increase, or was it the result of the competition finally heating up? If it’s the former, then Netflix will be worth buying again at some point on the way down. If it’s the latter, then this could be a house of pain for a very long time.”

Amidst all this conjecture, it is Netflix Inc (NASDAQ:NFLX)’s CEO Reed Hastings who remains remarkably calm and on being questioned on the downtrend, he shrugged it off in as stoic a manner as possible.

This article has been written by Vinita Basu.

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