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Bill Gunderson
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Bill Gunderson @billgunderson is the CEO and Chief Market Strategist of Gunderson Capital Managment in San Diego, CA. He is also a professional money manager, former research analyst, author of Best Stocks Now, and developer of the Best Stocks Now smartphone app. He offers four free weeks to his... More
My company:
Gunderson Capital Management
My book:
Best Stocks Now! Summer 2011 edition
  • Time to Dump Netflix? (NFLX) by Bill Gunderson, http://PWstreet.com 4 comments
    Jun 7, 2011 7:01 PM | about stocks: NFLX, CSCO

    Time to Dump Netflix (NASDAQ:NFLX)?
    by Bill Gunderson



    One could argue that with a current PE ratio of 79, the valuation of Netlix (NFLX) is in the stratosphere and should be avoided. From my eighteen years of experience as a professional money manager, I have determined that for me the three most important criteria for a stock are Value, Performance, and Safety. 

    Let’s begin with value. A pure “value” investor would most likely stop reading this article once they see a PE ratio of 79 on Netflix. Consider for a moment however, that the stock has been growing it’s earnings at an average clip of 41% per year over the last five years. This makes it one of the great growth stocks of our day. The consensus analyst estimate for growth over the next five years is currently pegged at about 30%. 

    Consensus earnings estimates for this year are currently $6.53. We are now looking at a forward PE ratio of about 42 time earnings. If the analysts are anywhere to being close, Netflix (NFLX) will be earning roughly $18.50 per share five years from now. This would put the PE ratio of the stock at under 15 if the stock were to go nowhere over the next five years. I do not foresee the stock going nowhere over the next five years. In fact, I think one could make a good argument for the stock being close to a double over the next five years.

    To do this, Netflix (NFLX) would have to hit its five year growth projections and trade somewhere in thee mid to high twenties five years from now. I think that this is very doable. Netflix (NFLX) currently gets a valuation grade of A- in my grading system. 

    Now let’s turn to performance. How has the stock performed against the rest of the market of the short term, intermediate term, and long term? 

    Over the last one month, three months, and twelve months the stock has clobbered the market. In fact, Netflix (NFLX) is up 144% over the last twelve months, while the S&P 500 is up 17.9%. Netflix gets a short-term performance, or momentum grade of A+ in my grading system.

    Over the last three years, Netflix (NFLX) has averaged an astonishing 105% per year while the market has averaged 1.9%. Over the last five years Netflix (NFLX) has averaged 57.8% per year, while the S&P 500 has average 0.2%. The stocks receives an intermediate performance score of A+ in my grading system.

    Netflix (NFLX) does not yet have a ten year track record, therefore I cannot give it a long term performance grade. 

    My proprietary grading system gives Netflix (NFLX) a current grade of A+. It is one of only 10 stocks from a database of about 2,700 that currently receives my coveted grade of A+. 

    Morningstar currently gives the stock only 1 star out 5 in their grading system! How can this be? They give Cisco (NASDAQ:CSCO), a stock that has gone BACKWARDS by -1.6% over the last ten years, their highest rating of five stars. How can this be?

    To learn more about the proprietary Gunderson stock grading system, you can download my Best Stocks Now Lite app from the iTunes store. I developed the grading system and the app to help me with my professional management practice. 

    You can also follow me on twitter @billgunderson

     

     

     

    (NFLX)

    Stocks: NFLX, CSCO
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Comments (4)
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  • yingcpa
    , contributor
    Comments (106) | Send Message
     
    It appears your system is based on extrapolation of the trend. Is it basically a trend following (momentum) system?
    8 Jun 2011, 04:07 PM Reply Like
  • Bill Gunderson
    , contributor
    Comments (68) | Send Message
     
    Author’s reply » My grading system takes into accout Value, Performance and Safety. Pure momentum investing is flawed in that it ignores value. Pure Value investing is flawed in that it ignores performance. Many so-called value stocks are cheap for good reason. Also, let's not forget that Netflix was UP 12% in 2008 when the market was under severe duress. That definitely deserves some bonus points! It could be argued that Netflix is a good defensive stock in a bad economy. Much cheaper to stay at home and watch movies than going to the local theater. The popcorn is cheaper too!
    9 Jun 2011, 01:31 PM Reply Like
  • econgreg
    , contributor
    Comment (1) | Send Message
     
    Wow... an A- for value on a 70+ P/E stock. That's the most ridiculous thing I've ever read.

     

    It's been three months since this article... How has your A+ stock performed since then? It's lost over half its value.

     

    For future reference, P/E values in excess of 70 ALWAYS indicate speculation, and not much else. Any blip in performance (or the SNAFU we've just seen splitting DVD and Streaming services) will burst the bubble, sending the stock plummeting.
    20 Sep 2011, 04:36 PM Reply Like
  • nate1749
    , contributor
    Comments (6) | Send Message
     
    Below is a list of his picks from above.

     

    was = 6/7/11
    today = 1/13/12

     

    S&P 500 was 1284.94; today 1289.09

     

    GMCR was $76.47; today $46.97
    EZPW was $31.46; today $27.30
    TSCO was $60.34; today $80.56
    CRR was $145.14; today $119.63
    FCFS was $39.06; today $35.80
    NFLX was $253.69; today $94.38
    13 Jan 2012, 11:10 PM Reply Like
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