Netflix Inc. (NASDAQ: NFLX) always screens out as an expensive stock. It is worth almost $43 billion in market capitalization, and growth trends in the United States have become mixed. Whether the international growth expectations can outweigh domestic price hike controversies remains up for debate. The stock is valued at 300 times current earnings expectations and is valued at over 100 times expected 2017 earnings. Even with an expected 20% revenue growth, these levels look astronomical.
Netflix shares almost touched $100 on Thursday, but they closed down at $96.50 on Friday. That would be like the Dow dropping 650 points in a day. What if Netflix cannot keep up with rising costs of content? What if Netflix runs into the same issue as other international companies not being able to repatriate foreign earnings without a penalty?
The flip side of the overvalued argument is that much of Netflix’s weakness has already been seen. At $97.50 now, it has a 52-week range of $79.95 to $133.27. That means it is much closer to lows than highs. Also, the consensus analyst price target of $104.42 implies that Netflix could rise even further. One analyst even sees the stock with 50% upside.
SL Green Realty
A top commercial office and retail properties real estate investment trust (REIT), SL Green Realty Corp. (NYSE: SLG) has an $11 billion or so market cap, which should prove it is a substantial player. Many investors have feared that REITs in general are in a serious valuation premium due to “lower for longer” interest rates. This yield is not even 2.6%. SL Green shares were last seen trading at $112.00, in a 52-week range of $80.12 to $121.94.
To show just how some investors might be concerned, the reality is that this stock was up over $118.70 as recently as September 7, and they closed down at $111.00 during Friday’s sell-off. That’s a 6.5% drop from last week’s peak to trough. REITs trade on a funds from operations (FFO) basis, but it does screen out with a 26.5 P/E ratio, which is quite high for an S&P 500 stock.
The flip side of the valuation here is that the $125.19 consensus analyst price target implies that SL Green shares should actually be 10% higher.
Tesla Motors Inc. (NASDAQ: TSLA) is already well off of its highs, but the reality is that many investors feel this would not be valued anywhere close to this price if there weren’t an Elon Musk premium. Tesla’s market value is almost $30 billion, versus $50 billion for Ford and $48 billion for GM. Tesla is valued at more than 100 times forward earnings expectations.
Tesla’s efforts in acquiring SolarCity brings up two risks: one is that it could act carelessly, and another is that it might not care about the earnings story for investors. Tesla also has all of its marbles riding on major growth targets that it hopes to hit in 2018 and 2020.
The flip side here is that the market keeps touting Musk’s visionary status. They love the electric cars, and the move into the Power Wall and into SolarCity did not crush shares as much as many skeptics may have assumed. That said, Tesla’s stock is already down 25% from its 52-week high. The consensus price target of $240.00 implies more than 20% upside ahead.
Note that valuations for current and forward P/E data come from Thomson Reuters, and price performance and other data from FINVIZ and Yahoo! Finance.