Coinstar, Inc. (NASDAQ:CSTR) is trading for just 9x forward earnings (13.5x trailing earnings) and revenue growth is comparable to that of Netflix over the long run — Coinstar’s revenue has almost doubled over the past two years while the stock is trading for only four times EV/EBITDA. In other words, Coinstar is a hated cash cow while Netflix, Inc. (NASDAQ:NFLX) is a much-loved money loser.
For my money, I would rather have Coinstar, Inc. (NASDAQ:CSTR)’s growth rate and profitability over the promise of a new technology. Obviously, the DVD renter is under long-term pressures from streaming, but there is no guarantee that Netflix will monopolize Internet-movie viewing. Keep in mind, Internet-connected televisions are likely the wave of the future, but DVD’s will still work no matter how many new delivery options become available to the consumer.
If you think the economic recovery and the cloud revolution is helping all Americans equally, go down to your local Wal-Mart Stores, Inc. (NYSE:WMT) at midnight and see how many folks are sleeping in their cars — I commend the company for opening its parking lots to the homeless.
Speaking of Wal-Mart’s stock, investors are receiving a 10% earnings yield compared to a zero yield on their Netflix holdings. Sure, brick-and-mortar retailers are about as popular on Wall Street as the eight-track player, but that might be a reason to be long a dinosaur like Wal-Mart Stores, Inc. (NYSE:WMT) — if everyone is already bearish on the stock, it may be a perfect time to buy. At 15x trailing earnings and 13.4x forward earnings, Wal-Mart appears to be fairly valued in my opinion and is a hold at current levels.
While the stock is fairly cheap, the growth rate over time for Wal-Mart Stores, Inc. (NYSE:WMT) could slow because of market saturation and the conscious choice of consumers to buy locally. Quarterly revenue growth of 3.6% is not all that bad, but I don’t expect record high 22% profit margins to last forever.
Netflix could also be punished for helping to bankrupt the U.S. Postal Service – the US Postal Service has already cancelled Saturday delivery and its looking more and more like the Post Office needs to start adding additional fees for handling red envelopes. No one knows when the Post Office’s day of reckoning will come, but it appears that when the public sector institution has to compete with the private sector businesses, the private sector almost always wins.
The bottom line
In conclusion, the stock has come too far too fast and is due for a correction. Just a few months ago Netflix was trading at under $100 per share, and last year could be bought for $50 and change. Certainly Carl Icahn is smiling, but he’s also likely selling into the massive short squeeze rally.
The stock could run back up to $300, at which point I think it’s a “no-brainer” short. This movie has already played in a theater near you – last time dropping from $300 to $60 a share. History doesn’t repeat itself, but it often rhymes. What is so much better about today’s Netflix than last year’s Netflix? It’s not profitability, tangible book value, or free cash flow per share.
Alas, I find both Wal-Mart and Redbox parent Coinstar to be better investments right now. Both are trading at more reasonable earnings multiples than Netflix, Inc. (NASDAQ:NFLX) is right now at 500x earnings.
The “new new new” market reality is not about fundamentals as much as it is about hyperbole so make sure to keep in mind that over the short run anything is possible.
The article Time to Sell Netflix originally appeared on Fool.com and is written by Nicholas Southwick.
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