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David Sims
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David Sims is the managing member of RidgeHaven Capital LLC. We prefer distressed equities and value investing. The firm was established to manage wealth with an eye on fundamental value, but also an understanding of technical trends and market behavior. David is a Certified Public Accountant... More
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  • Wishing I Had Stayed Short Netflix

    Back in July, I wrote a piece on Tumblr stating that Netflix (NASDAQ:NFLX) was ripe for a correction. I compared the Netflix stock price appreciation to revenue and subscriber growth. The comparison obviously showed an over-valued stock.

    I also wrote,

    "Traditional measures of valuation like price to earnings ratios are an easy target for criticism. The current forward P/E ratio of more than 260 is without precedent. This valuation shows an earnings yield of 0.38%. As we know, easy money is about to be removed from the market, which should cut into yields on all securities. Netflix is ripe for a correction."

    Since I wrote this, Netflix stock dropped from about $115 to $99 today.

    NFLX Chart

    NFLX data by YCharts

    At the time, I shorted Netflix in several accounts for myself and clients. However, each time the stock dropped marginally, I closed my shorts, booking tiny gains.

    Now, I am reviewing the forward P/E ratio for the company again and seeing that it has actually gotten worse as the stock has been selling off. At a forward P/E of 332, you have to wonder why anyone would buy the shares.

    Overall, I am bullish on several sectors of the market, including homebuilding and financials. However, stocks like Netflix might need to crater before the market moves forward. (Considering a new short position.)

    Tags: NFLX
    Sep 04 11:00 AM | Link | Comment!
  • Volatile Post Earnings Ride For Baidu Shareholders

    With the recent up and down swings in Chinese markets, I was especially interested in the post-earnings trading of stocks like Baidu (NASDAQ:BIDU). The headline from Bloomberg was "Baidu Sales Outlook Misses Estimates on Weaker Chinese Economy."

    Baidu's sales forecast was the disappointing data point for investors, as the stock fell more than 12% after-hours. This is after the company posted 38.3% annualized revenue growth and an earnings per share beat of 10 cents.

    I recently put a sell rating on Netflix (NASDAQ:NFLX) and I found it interesting that Baidu is expanding into streaming video. This helps to reinforce my belief that Netflix has few competitive barriers, especially in unregulated foreign markets.

    Let's be real, the problem with these stocks is not the underlying business. Baidu may have lowered sales forecasts, but the current growth rate of 38.3% is spectacular. The problem is the valuation of the stock. At 33 times trailing earnings, they must execute on forecasts with perfect precision.

    That being said, Baidu may be a better buy than others in this sector. This is just a quick glance at volatility and the impact of lowering guidance.

    Tags: BIDU, NFLX
    Jul 28 7:58 AM | Link | Comment!
  • Weak ADP Employment Data Weighing On Markets

    All major U.S. market indices S&P 500 (NYSEARCA:SPY), Dow (NYSEARCA:DIA), and Nasdaq (NASDAQ:QQQ) are headed lower today on weak economic data. The ADP non-farm payrolls figure for April 1st was underwhelming.

    ADP Change in Nonfarm Payrolls Chart

    ADP Change in Nonfarm Payrolls data by YCharts

    4-Week Moving Average of Continuing Unemployment Claims

    Tomorrow's weekly data could add to concerns about the employment picture and be a preview for Friday's employment report.

    US 4-Week Moving Average of Continued Claims for Unemployment Insurance Chart

    US 4-Week Moving Average of Continued Claims for Unemployment Insurance data by YCharts

    Tags: QQQ, SPY, DIA
    Apr 01 12:34 PM | Link | Comment!
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