Will the Netflix (NFLX) Train Continue Steaming Ahead?

11/23/2010 12:01 am EST


One of the best performing American stocks this year is Netflix, Inc. (NFLX).

The stock is up 214% year to date. NFLX has clearly outpaced most other US equities, even the Wall Street darling Apple (AAPL) is up only 45% for the year.

Netflix’s ability to innovate is one key component of its outstanding performance. The company is a pioneer in the mobile and TV business with applications that stream movies to all sorts of devices including iPhones, the Nintendo Wii, and of course, the PC. Netflix has always stayed ahead of the technology curve. Their extremely competitive subscription model had made them one of the biggest competitors in the market place. One casualty of NFLX's success, longtime heavyweight Blockbuster, filed for Chapter 11 bankruptcy back in September.

Netflix has been assertive in its shift to streaming movies by searching for new markets. There is talk that Netflix will soon have turnkey solutions for steaming movies compatible to iPad and Android devices. Currently, CEO Reed Hastings says that the company is focusing on large screen markets such as Miscrosoft’s Xbox, Sony’s Playstation 3, and Wi-Fi.

Another reason for Netflix’s success is their leadership. CEO Reed Hastings was named top businessperson of the year by Fortune magazine. Besides serving as the company's CEO, president, and chairman of the board, Hastings is also a director on Microsoft’s board. Netflix is Hasting’s baby; he founded the company in 1997 along with Marc Randolph.

Currently, the stock is trading at a rich PE multiple of 65.25. In comparison, stocks such as AAPL and Google (GOOG) have PE multiples of 20.25 and 23.91, respectively. Another disturbing sign is the firm's low book value of only $3.67 per share. This makes their price-to-book ratio a staggering 47.15.

While the fundamental valuations are questionable, no one can argue with the stock's performance over the past year. Technically, the stock is just off a recent 52-week high. NFLX is trading slightly above the 20-day moving average line ($168).

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Netflix is expected to announce Q4 earnings on January 27 after the close. Current estimates call for $0.71 per share.

By Josh Golebieski, contributor, PortfolioTilt.com
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