Single Stocks: NetFlix - 3 - Goldman's Kiss of Death

Another sign of extreme over bullishness on one of the most overhyped and over valued stocks in the US markets: Netflix. Usually, Goldman Sachs is the perfect contrarian indicator, and just the tone of this reports should gives you the shivers.

See quotes below from Business Insider:

Netflix is a screaming buy, says Goldman Sachs analyst Ingrid Chung in a report this morning.
She is upgrading the stock to "buy," raising her price target to $300 from $210.

Why? Because she thinks Netflix has enough users and momentum to make to near impossible for any rivals to enter the video streaming space and compete any time soon.

To read all about the whys, please revert to the report. As far as I'm concerned, I am not interested in the whys, specially when they are so obviously misleading and exuberant...

Market Sentiment: Treasuries Despised, Current Rally in Denial

This is a follow up to the post I published earlier today: Medium-Term and Long-Term US Treasuries Are Quite Attractive At Current Levels [updated].

The quote below if from a Bloomberg report from today. What is very important here is that it shows the current extremely negative sentiment that treasuries are facing. “This isn’t a flight to quality, it’s a flight from disaster”. In the face of the obvious rally, this analyst is denying the forces behind the rally, and also showing how much he despises the far too hated treasuries.

Treasuries surged, pushing 10-year note yields to their lowest level this year, as Japan’s Prime Minister Naoto Kan asked for calm as engineers worked to cool three nuclear reactors damaged by last week’s earthquake.
[...]
“This isn’t a flight to quality, it’s a flight from disaster,” said Colin Embree, the Singapore-based head of fixed-income trading and sales at Bank of Nova Scotia Asia Ltd., a unit of Canada’s third-largest lender.

Medium-Term and Long-Term US Treasuries Are Quite Attractive At Current Levels [updated]

I've been following the treasuries for quite some time, but haven't positioned myself yet. Technically and sentiment wise, they have been a buy since late January, and now, with the disasters in Japan, they are becoming fundamentally more interesting.

For those who do not trade futures or treasuries directly:

• IEF, the iShares 7-10 Year Treasury ETF is yielding about 3.3%
• TLT, the iShares 20+ Year Treasuries ETF is yielding about 4.2% 

The later one has the most room for capital gains, but this comes with a bit bigger downside risk as well.

[Update:] Here's a contrarian indicator that also shows bullish signs for Treasuries:

March 10 (Bloomberg) -- Bill Gross has dumped all Treasuries from the world’s biggest mutual fund, Warren Buffett is shifting to shorter-term debt, and Swiss Reinsurance Co. is boosting equities and corporate bonds.

Some of the biggest private investors in the bond market, from fund managers to insurers and pensions, are preparing for an end to the three-decade Treasury rally, as interest rates near zero and unprecedented spending by the U.S. government and the central bank threaten to fuel inflation. Their strategies range from reducing the longest-dated holdings and shifting to higher-yielding corporate debt, to investing in stocks, commodities, non-U.S. bonds and even holding cash.

“U.S. government bonds are not a safe haven,” Jim Rogers, the global investor who predicted the 2007-2009 housing-market crash, said in a telephone interview from Singapore. “I cannot conceive of lending money to the U.S. government for 30 years.”

Pacific Investment Management Co. said yesterday that Gross, who runs the $237 billion Pimco Total Return Fund, eliminated government-related debt from his flagship fund last month as the U.S. projected record budget deficits. Gross, who has overseen the expansion of Pimco into a $1.2 trillion bond shop over four decades, predicted a year ago that “bonds have seen their best days.” Last month, he said Treasuries may have to be “exorcised” from model portfolios.
[...]
Mutual funds, which collectively represent the largest private owners of U.S. debt, cut their holdings by 17 percent to $638 billion as of June 30 from the end of 2008, according to federal government data. 

 [...]
BlackRock Inc., the world’s biggest money manager, has moved to shorter-duration securities because of the potential for interest-rate swings and is “underweight” Treasuries relative to benchmark indexes, Rick Rieder, chief investment officer of fundamental fixed income at the New York-based firm, wrote in a February investment commentary.
[...]
“China’s faith in the Fed broke a few years ago,” said Xie, now an independent economist based in Shanghai. “China used to be enamored of people like Greenspan and Bob Rubin even though at that time the dollar was coming down. QE2 destroyed whatever faith was left.”
[...]
“The legitimate corollary question is: Who will buy Treasuries when the Fed doesn’t?” Gross wrote.

Single Stocks: Green Mountain

Another post in the Single Stocks series and great overvaluations: Green Mountain Roasting Company. The company has currently achieved a great deal already: that of being the most highly valued company in the US.

The whole thing smells really bad, specially if you add the $1.1 billion in debt compared to the $33 million in cash, and the fact that the SEC is investigating their earnings...

(Bloomberg) And you think Starbucks is expensive?

Green Mountain Coffee Roasters Inc. has been growing so fast that acquirers looking to scoop up the largest U.S. seller of single-serve brewers would pay the highest valuation in America. The shares, which surged to a record this week on speculation of a partnership with Starbucks Corp., trade at 295 times cash flow, according to data compiled by Bloomberg. That’s more than any company in the Standard & Poor’s 500 Index. By sales, Green Mountain is costlier than eight of 10 U.S. stocks.

Chief Executive Officer Lawrence Blanford has used the Keurig business to almost quadruple Green Mountain’s revenue in the past three years, helping the company’s market value balloon more than sevenfold to $5.8 billion. While its 80 percent share of the U.S. single-cup coffee market makes Green Mountain a target for Coca-Cola Co. and Nestle SA, according to Janney Montgomery Scott LLC, it will still have to contend with Starbucks. CEO Howard Schultz said yesterday the world’s largest coffee-shop operator intends to compete directly for sales.

“People just can’t seem to drink enough coffee,” said John Carey, a Boston-based money manager at Pioneer Investments, which oversees about $250 billion. [...] 

Pinheiro, who recommends buying Green Mountain, valued the coffee company at about $9 billion, or 56 percent more than its current market capitalization. At the level, a takeover would cost 47 times earnings before interest, taxes, depreciation and amortization, according to data compiled by Bloomberg.
[...]
With Starbucks’ Schultz damping speculation that it may partner with Green Mountain, the company also faces the prospect of increasing competition as patents on the Keurig K-Cup system are set to expire next year. Starbucks will win amid the change and innovation in the $4 billion single-serve market, the fastest growing in the global coffee industry, Schultz said.
[...]
Green Mountain spent $10.5 million more in cash on its operations than it brought in last year, even as it reported a 46 percent jump in net income to $79.5 million. The discrepancy was a result of a buildup in inventories and revenue booked for sales for which it had yet to receive payments, according to data compiled by Bloomberg.

The company had to restate earnings back to 2007 in part because of incorrect costs for K-Cup coffee pods and changes to the recognition of K-Cup royalties, Green Mountain said in a statement in November. The adjustment followed an investigation initiated by the U.S. Securities and Exchange Commission in September into how the company recognizes revenue.

The coffee merchant said in a Feb. 3 regulatory filing that it continues to cooperate fully with the SEC.

Green Mountain had $33 million in cash on hand as of Dec. 25, 2010, and about $1.1 billion in debt, Bloomberg data show.
[...]

Single Stocks: NetFlix - 2

I've already posted about NetFlix just about a week ago. I forgot that I had saved some additional information about the company, and its valuation:

On the 25th of Jan, Netflix released its financial results for the fourth quarter of 2010 and of no surprise to anyone who was paying attention last year it did quite well by passing 20 million subscribers (see EnGadgets post).

At about the same time, NetFlix's market cap was about $12 billion. What does this mean in terms of valuation per subscriber? The maths are easy to do: $12000/20 = $600. Each subscriber is valued $600.

NetFlix's subscription costs $7.99 a month.

NetFlix's EBITDA is about $300 million, we're not even talking about net profits. Yet, 300/20 = 15$. It means that out of the 8*12 = $96 worth of yearly subscription, NetFlix only make profits on the last 2 months.

So, for a subscriber to bring in $600 worth of profits, he/she needs to keep the subscription for 600/15 = 40 years.

How realistic is that?

Even though NetFlix doubles its user base, then each subscriber need to remain with them for 20 years.
Then if NetFlix quadruple its user base in the next couple of years (100% growth per year — it's becoming very unrealistic) then each subscriber needs to keep on paying for 10 years for the current valuation to be credible.

I'm not a stock analyst, but simple and basic calculations show just how much this stock is overvalued. I guess with a PER of 80, this was already obvious, but I wanted to put this huge number into perspective with actual facts.

Single Stocks: NetFlix

This first post is about NetFlix, which I have had in my tracking list for several month as one of the most expensive stocks in the US markets (PER of 100) and having jumped the most in about two years (about 1200% or so?).

Whitney Tilson, fund manager at T-2 partners, and notoriously public about being short the stock for quite some time (and making big losses, unfortunately) published an investor letter, notifying their investors that:

In mid-December, we published a lengthy article on why Netflix was our largest bearish bet at the time. With the stock up nearly 25% since then, one might assume that we’d think it’s an even better short today, but in fact we have closed out our position because we are no longer confident that our investment thesis is correct.

On the 18th of Feb, I sent a friend an email about  NetFlix and told him I believe that the stock is ripe for shorting.

Unfortunately, I didn't do enough homework to position myself, and the shares are now falling (already down about 20% since then). This is not the first time it happens, as I have had several single stocks ideas in the list of items to post about, and never actually had a chance to do enough homework to position myself correctly, nor to write the posts until the information became useless. So I've decided that from now on, I will always put at least a minimalistic post out, in order for my dear readers who want to investigate and share their opinion, to be able to do so.