Netflix is trading at over $300 a share but is worth less than $100, this investor says

Ross Healy of MacNicol & Associates has one throwback name for those fans of Netflix (Quote, Chart NASDAQ:NFLX) who think that there’s still more room for the stock to grow: Nortel.

And while he’s not predicting Netflix will suffer the same burnt-to-ashes drama as the defunct Canadian telecom company, Healy warns investors that like Nortel, Netflix’s current share price has no basis in the company’s fundamentals.

The business that puts the ’N’ in the FAANG group of tech stocks has seen its share price drop in recent weeks, in part due to a mid-July second quarter earnings report which saw the company post 40 per cent year-over-year revenue growth yet had subscriber additions come in 1.1 million below management’s guidance. The market reacted quickly, sending the stock lower by more than seven per cent in one day’s trading on July 15.

The stock posted notable gains on Monday, finishing up 3.5 per cent, but NFLX remains 23 per cent off its mid-July record high of $421.38. (All figures in US dollars.)

Still, for the year, Netflix is up a monstrous 67 per cent, and with the streaming company clearly dominating the competition — while promising to spend a whopping $8 billion on content over 2018 — investors would be forgiven for thinking that the sky’s the limit.

Healy says that while the company may be fine over the long haul, the run-up in Netflix’s share price currently bears no connection to reality.

“It reminds me of another company, Nortel, which was trading up at ten times book value and 100 times earnings … and Nortel was everybody’s favourite Canadian stock,” says Healy, portfolio manager at MacNicol & Associates, to BNN Bloomberg. “I have to say the same about Netflix. It’s worth maybe 25 per cent of where the stock is selling at right now.”

“All you have to do is look at the Globe and Mail this morning and there was an article on [Rogers Communications] and their entry into this field and realize that there are, of course, all kinds of companies including Disney and so on who are trying to out-Netflix Netflix, and that’s going to put a lot of pressure on the business,” he says.

Healy says volatility has been Netflix’s hallmark as a publicly traded company and he doesn’t see any reason for that to change going forward.

“As long as we’re in a bullish market and as long as people believe, then Netflix will continue to do well. It’s when they stop believing that it will do badly,” he says. “If you are a long-term investor and you don’t look at this company day-to-day, week-to-week or even year-to-year, you may be perfectly happy ten years from now with the outcome. But if you’re the kind of person who looks a year from now and sees that the stock is down 70 per cent and decide to jump off the nearest railroad bridge or something like that, then this stock is not for you.”