This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Netflix Is Overpriced but Apple Is On Sale

NEW YORK ( TheStreet) -- The renowned and often controversial economist John Maynard Keynes said a mouthful when he pronounced: ""Markets can remain irrational longer than you can remain solvent."

With the mania in shares of Netflix (NFLX - Get Report) going full bore after its earnings report on Wednesday it's time to reconsider that oft-forgotten quote. Whether you agree with Keynesian economics or not, if you've been an investor or trader in the stock market you can hardly disagree with it.

Shares of NFLX are up 43% in two trading sessions after the reaction to its after-market earnings announcement. This appears to be a "short squeeze" situation, and I'm reminded of one of Jesse Livermore's favorite books "Extraordinary Delusions and the Madness of the Crowd" by Charles Mackay. Traders may be chasing the stock while those who were short NFLX are covering on heavy volume.

NFLX had a surprisingly positive quarter but not enough to justify such irrational exuberance.

It's not that NFLX's earnings skyrocketed or that it is anywhere near reaching the levels of success that a company like Apple APPLE (AAPL - Get Report) has experienced for years.

When one compares NFLX, with a market cap of less than $8 billion, with a gigantic cash generator like AAPL with a market cap of nearly $434 billion, a rational investor has to wonder why AAPL shares are down while NFLX is soaring.

On a timely note, TheStreet's Jim Cramer said in an interview today that he still likes NFLX but he also sees that the price has gotten ahead of itself.

When a company like Apple can report a relatively positive quarter as it did on the same day and in after-hours trading be taken out to the woodshed, something is seriously irrational.

Today, AAPL shares traded down as low as $450.66, even though AAPL is trading at only 8 times forward (one-year) earnings. That's outrageously cheap, and at a price of even $460, its dividend yield is 2.3%.

Apple's revenue for the quarter was $54.5 billion compared to $46 billion, an increase of $8.2 billion year-over-year. AAPL has no debt and tons of cash.

1 of 4

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $124.25 0.00%
NFLX $413.12 0.00%
FB $81.66 0.00%
GOOG $542.56 0.00%
TSLA $187.59 0.00%

Markets

DOW 17,698.18 -77.94 -0.44%
S&P 500 2,059.69 -8.20 -0.40%
NASDAQ 4,880.2280 -20.6570 -0.42%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs