Tesla Motors Inc (TSLA), Zillow Inc (Z) & Netflix, Inc. (NFLX): These Stocks Are Overvalued

Netflix, Inc. (NASDAQ:NFLX) has a more palatable distribution model than HBO (you don’t need cable to buy it, and it’s cheaper), but it will be interesting to see if Netflix can elude the so-called “Chanos Rule” (named after short seller Jim Chanos who has observed the 30 million wall run into by numerous companies over the years).

Netflix, Inc. (NASDAQ:NFLX)’s CEO Reed Hastings thinks he can grow Netflix’s subscriber base to 90 million in the coming years. If it he can hit that goal, Netflix, Inc. (NASDAQ:NFLX)’s stock may be reasonable even at these levels, but if he can’t, the bulls will be hurting.

As I’ve written previously, this recent quarter is unique for Netflix in that it lost vast quantities of children’s programming (mostly Viacom content). Going forward, Netflix, Inc. (NASDAQ:NFLX) may have to shed more of these bulk content deals so that it can continue to invest in original programming.

But if some of its subscribers, perhaps angered by the loss of Viacom, abandoned the service, Netflix’s stock could crater.

Investing in overvalued companies

Don’t get me wrong — I’m not saying the stocks of these companies are all poised for a near-term collapse. Actually, given that all of them have relatively high levels of short interest, the bull run could continue unabated for quite some time.

That said, at these levels, Tesla, Zillow Inc (NASDAQ:Z) and Netflix, Inc. (NASDAQ:NFLX) appear to be priced for perfection. Tesla Motors Inc (NASDAQ:TSLA) will need to transition to a mass-market auto company in less than a decade, Zillow will need to increase its earnings significantly, and Netflix will need to continue to add millions of subscribers each quarter.

While these scenarios are certainly possible, they are incredibly optimistic. Investors should weigh the likelihood of these outcomes in their investment decisions.

The article These Stocks Are Overvalued originally appeared on Fool.com and is written by Salvatore “Sam” Mattera.

Sam Mattera is long Tesla Puts dated September 2013. The Motley Fool recommends Netflix, Inc. (NASDAQ:NFLX), Tesla Motors Inc (NASDAQ:TSLA), and Zillow Inc (NASDAQ:Z). The Motley Fool owns shares of Netflix, Tesla Motors Inc (NASDAQ:TSLA), and Zillow Inc (NASDAQ:Z). Salvatore “Sam” is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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