Never forget that Netflix (NASDAQ:NFLX) is nothing more than a middleman. The company does nothing more than deliver content to the consumer. Its method of doing so helped crush the video store model, but it too is at risk of being crushed as home delivery via a less expensive method becomes reality.
The company is racing to make sure that doesn’t happen, but that hope is unrealistic. What is remarkable is that with the stock down nearly $200 from its peak, the shares are still expensive.
Recent attempts to prevent a collapse have failed. Management’s decision to split the company in two was derided by customers, commentators and investors and was then quickly abandoned. The focus is clearly on streaming home delivery, but difficulty in securing content at a reasonable price seems elusive.
The reality is that content providers deserve to get paid and the question is whether Netflix adds value in the process. It’s a good question. Even if you ignore these questions, the stock is expensive. Profit growth, while rapid, is slowing. Wall Street expects the company to make $4.48 a share in the current fiscal year. At current prices, the stock is trading at 26 times that number. That’s simply too much given the questions about maintaining growth. I would sell this stock short. I see $50 or below within 6 months.
Winnebago (NYSE:WGO), the maker of recreational vehicles, posted earnings on Thursday that included a warning that backlog of orders slipped 10%.
In response, the company is looking to cut prices in hopes of sparking more demand. I wouldn’t bet on it. The fall season for recreation vehicles is tough. At a minimum, look for Winnebago to struggle over the next two quarters.
The bias for Winnebago is negative and likely to stay that way. With the economy sputtering along, it is difficult to see prospects improving any time soon. I would sell this stock short.
As of this writing, Jamie Dlugosch did not own a position in any of the aforementioned stocks.