The two closest competitors for Netflix are Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc. (NASDAQ:AAPL). Apple recently plunged after a disappointing quarter, and its trailing earnings multiple is now between 10 and 11. Even if growth is over (the company actually saw slight EPS growth from a year earlier when correcting for the shorter fiscal quarter), that is a cheap multiple particularly given Apple’s cash position. As a result we think that it is a better value than Netflix. Read our most recent take on Apple. Amazon, meanwhile, has a 2013 P/E of over 100 and so like Netflix it depends on very high earnings growth over the next several years. We wouldn’t consider it a good buy right now.
We can also compare Netflix to Coinstar, Inc. (NASDAQ:CSTR), which operates Redbox machines, and DISH Network Corp. (NASDAQ:DISH). Coinstar’s kiosks are a less flashy business than streaming video, with the result being that the stock trades at 10 times trailing earnings. Growth expectations imply a five-year PEG ratio of 0.6, and revenue has been up. Value investors should be warned that 42% of the outstanding shares are held short, so a number of market players are confident that Coinstar is overvalued. Dish’s business has been about flat, with the stock carrying trailing and 2013 earnings multiples of 23 and 16 respectively. We would want to see the company actually deliver some of that promised earnings growth before considering an investment.
We don’t think that investors should be buying Netflix following its quarterly report. While it is a positive that the company turned a profit, it has much further to go to justify the current price and revenue growth- while good- has not been particularly strong given the scale of Netflix’s earnings multiples.
Disclosure: I own no shares of any stocks mentioned in this article.