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Is Netflix a good investment? No, says this fund manager

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NetflixHow high can Netflix (Netflix Stock Quote, Chart, News NASDAQ:NFLX) go?

With everyone and their dog staying at home these days, streaming TV and its reigning champion Netflix are now bigger than ever —and so is Netflix the stock, which last week hit a new high and hasn’t looked back since.

And as the days of COVID-19 keep dragging on, investors may be wondering whether now’s the time to climb on board the Netflix express. No, says portfolio manager Darren Sissons, who argues that the stock is too just expensive.

Netflix kept up its torrid pace on Monday, once again reaching above $330 per share as the market continues to favour tech names benefiting from the stay-at-home culture imposed by COVID-19 restrictions.

And while ‘Will they or won’t they?’ could apply to Netflix’s reality TV hits like Love is Blind, it’s equally apt for Tuesday’s quarterly report from NFLX, which is expected to smash management’s guidance for the period but whether analysts’ expectations will be matched or surpassed is another question.

Impressing on guidance would be a bonus for Netflix, which has underwhelmed in a number of quarters of late. Last year’s first quarter results, for example, were both an earnings and revenue beat but management’s call for second quarter EPS of $0.55 per share was well under the $0.99 per share expected by analysts.

Netflix
Darren Sissons

The Q2, 2019 story was trouble of a different sort, as Netflix had lower-than-expected international subscription additions, even as earnings again came as a beat at $0.60 per share.

Netflix had previously called for first quarter 2020 earnings of $1.66 per share on revenue of $5.73 billion.

But while the company is assuredly firing on all cylinders at the moment, having successfully emerged from a storm of concern surrounding the debut of competitor platforms like Disney+, Sissons says there’s little to justify the sky-high valuation.

“Virtually every house at the moment has got Netflix, to the extent that they have a smart TV. The kids are on it, everybody’s using it,” said Sissons of Campbell Lee & Ross Investment Management, speaking on BNN Bloomberg on Monday.

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“So I do think there’s some upside but I’ve always found it a very, very rich valuation of the company, its shares. I think there are different formats that people are starting to consume content on. But for me, ultimately I just find Netflix a little rich,” he said. “I would look perhaps at a Disney story although obviously the jury’s a little bit out there, and there are other streaming opportunities so from a valuation perspective.”

“I’m on the sidelines, but I do recognize how pervasive the product offering is, and so on a net balance basis I would say don’t confuse a good product or a good company with a good investment,” Sissons said. For Netflix’s first quarter, analysts are calling for EPS of $1.64 per share on sales of $5.7 billion, with subscription additions expected to come in at about seven million.

Year-to-date, Netflix is up 35 per cent.

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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