Opportunity Remains for Netflix

NEW YORK (TheStreet) -When you look at Netflix's (NFLX) current price of $389, an all-time high for the company, and compare it with the high $40 price range back in 2009, there's no question that this one has been a clear winner.

But that simple comparison ignores the many ups and downs the stock has taken... and it is the ups and downs that provide a good lesson for opportunities when it comes to momentum stocks.

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After a huge surge up in 2010 and half of 2011, Netflix began its precipitous fall in July 2011 from $300 a share down to the low $60s. What happened? While Reed Hasting was right in shifting focus to online / content deals and expanding internationally - versus the original driver of biz (disc delivery domestically), it was done in too-staggering a fashion. His abrupt and severe price increase for the DVD rentals met backlash from customers. Not to mention, his plans to separate the streaming and DVD plans and come up with a Qwickster fell extremely flat, fueling worries about slowing growth and rising competition

But after a volatile start to 2012, the stock steadily rose, really picking up momentum in 2013 and making its way back to its prior levels and beyond.  This was because Hastings apologized for his miscalculations and got back to growing the company, as subscriber growth--particularly for the key streaming growth area--returned.

Now that doesn't meant the stock has been in the clear. Just before this quarter, the stock dropped about $40 points over concerns including net neutrality. And it was back on October 22nd of this past year, that Netflix dropped on news that Carl Icahn had reduced his stake in the company. Of course, this was short-sighted, as Icahn was locking in some gains after being up 457% on his position. With a cost basis of $58 per share, he was up almost $800 million on the position. In fact, many had been scratching their heads wondering why he hadn't taken any off the table previously... Plus, while Icahn sold 2.99 million shares, he still owned 2.67 million shares, or a 4.5% stake.

So, at new highs, what now?

Netflix ended 2013 with over 44 million members, adding 2.3 million domestic subscribers and 1.7 million international subscribers in the last quarter alone. And the company provided upside guidance for subscribers in the first quarter of 2014. Remember this growth is key, particularly at a time when traditional cable has seen subscriber losses. In the fourth quarter, Time Warner Cable (TWC)-which has received a bid from Charter Communications (CHTR)-lost 215,000 video subscribers last quarter.

Yes, the stock is expensive on traditional valuation multiples-but the way to think about it is in relation to the total market potential--particularly relative to the domestic cable companies and the global opportunity.

Netflix fits in the camp of a 'cult stock.' This means that it will continue to be driven up by the perceived market opportunity relative to its small global saturation. As like as subscriber growth remains strong (which it has), concerns about competition and costs.

Right now, the company is growing members and revenue faster than content spending. And CEO Reed Hastings can even joke around that the HBO Boss' Password is 'Netflix Bitch.' Netflix is well-aligned with today's binge watching culture, it is licensing exclusive and original content-including shows like House of Cards and Orange is the New Black (both personal faves), and announcing new streaming deals.

Bottom line? Don't want to stand in front of this one.

--Written by Nicole Urken in New York.

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