Netflix, Inc. (NASDAQ:NFLX) has reached a plateau. After periods of seemingly continuous increases, NFLX stock has remained flat for the last month.

Though the success of homegrown programming such as Stranger Things and its move into 190 countries throughout the world has bolstered the stock, the equity now faces many threats. Given a high valuation and its competitive threats, investors would be wise to avoid this stock for now.

A sell recommendation on this article comes with mixed feelings. As I pointed out in September, Netflix has enjoyed an ever-growing stock bolstered by 20 years of mostly correct strategic decisions. And as our won Robert Waldo pointed out, when people are using “Netflix” as a verb meaning to watch streamed content, it’s a clear indication that NFLX and its offerings have become an integral part of millions of lives.

With solid management and a great programming lineup, it is little wonder this service, and by extension NFLX stock, remains popular.

Disney Will Beat Netflix on Content

Still, challenges remain. The most serious challenge for the company involves formidable competitors arising, namely Walt Disney Co (NYSE:DIS).

Having Disney pull its content from Netflix to start their streaming service serves as a blow to the platform. Netflix’s moat is not wide or deep enough to block Disney.

With its classic movies dating as far back as the 1930s, Pixar, and the Star Wars franchise, Disney offers a library of time-tested content with which NFLX cannot compete.

However, this does not mean Disney will destroy Netflix. NFLX produces great content of its own, the latest being Stranger Things 2. It is this content upon which Netflix’s moat was built and allowed them to stay on top of competition from Hulu, Prime from Amazon.com, Inc. (NASDAQ:AMZN), and HBO Now from Time Warner Inc (NYSE:TWX).

Moreover, NFLX has a history of defeating the competition. The company ran Blockbuster LLC out of business through mail order movies and later streaming. Additionally, the company undercut cable providers, calling into question the viability of offerings from Comcast Corporation (NASDAQ:CMCSA) and AT&T Inc. (NYSE:T).

A 200 P/E Prices an Imperfect NFLX Stock for Perfection

Still, another issue with the company is the NFLX stock price itself. The equity trades in the $190s per share. This price has NFLX stock trading at almost 200 times earnings, eight times sales and over 25 times book value. The sales and book value metrics exceed that of even Amazon.

While stocks sometimes move higher even at metrics like this, a 200 PE prices NFLX stock for perfection. The company has fallen short of perfection as the company reported earnings of 29 cents per share in its Oct. 16 report.

Netflix missed estimates by three cents per share. Despite beating estimates on subscriber growth, the stock fell about 5% over the next week and has been stuck in a range since.

Additionally, the average annual growth rate for NFLX stock stands at over 22%. Buyers have bid up the value of technology stock based on revenue growth in the hopes of profits later.

Netflix has become a profitable company. However, comparatively low profits give NFLX stock a PE ratio ten times higher than the S&P 500 average.

Concluding Thoughts

Unfortunately for investors, the current price and the shrinking moat make NFLX stock one to avoid at this time. Netflix is a well-run company that produces great content, displaces outdated industries, and usually makes correct strategic decisions.

However, with Disney about to shrink its competitive moat and its earnings misses, the stock is not exhibiting the “perfection” investors expect from a stock with a 200 P/E ratio.

However, investors who want to own NFLX stock still should pay attention to the equity. With a strong content library and its reach and name recognition in almost every country in the world, Netflix remains a force in the media industry.

Once the company finds a reasonable valuation, the time will come where one can buy and profit from NFLX stock.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.