Volatile Netflix Is A No Go For Investors

Netflix's (NFLX) shares had plummeted around 16% due to cutting down of the challenging domestic subscription target, from 7 million to 5.4 million for the year. The decline has been offset by unconfirmed rumors of Microsoft (MSFT) looking to buy the company. The current price of $69 is above the consensus mean price target of $65. As the volatility in the stock price continues, we reiterate our earlier recommendation of avoiding NFLX.

As the company continues to work through a decline in its DVD business, losses from international expansion and content payments amidst tough competition, we think that the forward P/E of 158x and EV/EBITDA of 23x show that it is not a good investment opportunity. Hurricane Sandy might help increase viewership for Netflix and word of mouth advertisement might be faster, but the volatility in the stock does not make it attractive. The rumor about Microsoft's interest in NFLX is not substantiated, and any further rumors might lead to covering of short positions by bearish investors. Currently, almost 30% of the float is short. Read more