This week we report on a mysterious orange ball seen in the sky and further heat from the sky-high Netflix share price.
Netflix nearly as big as Disney!?
The media streaming business continues to confound the sceptics and has been the best performing stock on the main US index this year, adding a whopping 74% in 4 months alone. It’s now nearly worth as much as Disney. This week it announced it had added another 7.4 million subscribers in the first three months of the year. Yowzers. That’s a lot of slack-jawed hours in front of the telly!
Overvalued hype at a price way beyond fundamentals? Or Messiah of Media with further to go?
PE ratios and what they mean
It has a PE ratio of 268. That’s a Price Earnings Ratio. This just means that investors are prepared to fork out $268 for every dollar the company makes. On a traditional reading, this is technically known as bonkers. By way of comparison, traditional old Sainsburys has a PE ratio of 12. This is more ‘normal’.
Let’s strip it right back and imagine we had a business making something very tangible. Cupcakes which we sold at the local market. £1 a cake and we sell 500 a week. That’s annual earnings of about £25,000. If we sold Cupcakorama for £50,000 we would have a PE ratio of 2. The price is twice what the earnings are. Based on the Netflix PE ratio, we would sell this business for £6.7 million.
With over 125 million subscribers across the world, Netflix is certainly a powerful platform. It’s up to you to decide whether its future earning potential is worth the punt today. You’re investing in tomorrow’s anticipated revenues, not today’s. Personally, I have given up on buying individual shares. Burnt by previous greed and the inability to constantly track them, I am very happy to let a fund manager do all of this on my behalf.
Consumer Investment Awards with the Telegraph
This week lil’ ole us are proud to announce our partnership with The Telegraph on the 2018 Consumer Investment Awards. We have compiled shortlists of what we think are the best investment providers in various categories including Best Online Investment provider, Best Value for Money and Best Service. If you can, please cast your vote below. We’re also shining a spotlight on pensions and ask you to rate the service and comms you get from these guys