New trade: Long Netflix (NFLX)/Short Blue Nile(NILE)

By: ispeculatornew
Date posted: 01.18.2010 (5:00 am) | Write a Comment  (6 Comments)

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Last week, I posted my opinion on Amazon and how it might lose a lot of ground when the Apple Tablet comes out. I had signaled I might be trading on this stock in today’s new trade. That is not happening after all. I did spent a lot of time looking into Amazon’s valuation and still think it’s expensive. But going short on a stock with so much momentum is dangerous and right now it does not sound like the right strategy.
So there I was looking for another trade and Blue Nile stuck out because of its very high P/E ratio. Now I have been burned by Blue Nile in the past so I took extra diligence this time around but I do feel comfortable with the position, mostly based on valuation. Blue Nile has been riding high for a long time now despite failing to deliver on expectations many times in past quarters.
Take a look comparing the sales/revenue growth of Blue Nile (NILE) and Netflix (NFLX) and you might see what I mean. I would expect both companies to trade at similar earning ratios yet it is far from being the case. Netflix has huge momentum and its recent deal with Nintento which will allow Wii users to stream Netflix videos is yet another sign of growth to come. Streaming Netflix videos are already available on Sony’s Playstation 3, Microsoft’s Xbox, as well as many web-enabled tv’s, Blu-Ray devices and more.
Quarterly sales growth (%)

TickerNamePriceDividend YieldPayout RatioEx-Dvd Date
WINWindstream Holdings Inc7.213.92356.153/27/2014
FTRFrontier Communications Corp4.429.01298.643/5/2014
TATransAlta Corp14.38.1N/A2/21/2014
CTLCenturyLink Inc28.137.67231.483/6/2014
DODiamond Offshore Drilling Inc47.77.3567.542/13/2014
CPGCrescent Point Energy Corp37.667.33488.532/26/2014
COSCanadian Oil Sands Ltd19.867.0481.292/19/2014
PWTPenn West Petroleum Ltd8.166.86294.253/26/2014
ESVEnsco PLC49.146.0928.613/13/2014
TAT&T Inc31.955.7453.244/8/2014
MOAltria Group Inc34.115.6281.113/14/2014
POMPepco Holdings Inc19.235.6187.023/6/2014
HCPHCP Inc38.835.6110.322/6/2014
ERFEnerplus Corp19.615.53N/A3/6/2014
HCNHealth Care REIT Inc57.495.53607.362/6/2014
TETECO Energy Inc16.265.3995.652/11/2014
RAIReynolds American Inc46.965.34103.63/7/2014
RIGTransocean Ltd42.475.2934.812/19/2014
ETREntergy Corp62.725.2869.572/11/2014
TEGIntegrys Energy Group Inc53.165.172.792/26/2014
BCEBCE Inc46.065.0665.513/14/2014
PMPhilip Morris International Inc75.394.9762.643/25/2014
KMIKinder Morgan Inc/DE33.324.92138.484/25/2014
SOSouthern Co/The41.254.91106.715/1/2014
NENoble Corp plc30.924.8624.312/6/2014
PPLPPL Corp30.494.8254.543/7/2014
EQREquity Residential54.84.75210.013/20/2014
VTRVentas Inc61.554.71238.423/7/2014
PBCTPeople's United Financial Inc13.844.786.944/29/2014
EDConsolidated Edison Inc53.744.6862.32/10/2014
DRIDarden Restaurants Inc47.324.6464.094/8/2014
LOLorillard Inc48.144.5773.632/26/2014
VZVerizon Communications Inc46.414.5751.734/8/2014
FEFirstEnergy Corp31.254.57119.432/5/2014
SJR/BShaw Communications Inc24.414.5161.582/12/2014
BMOBank of Montreal67.624.546.864/29/2014
CMCanadian Imperial Bank of Commerce/Canada85.814.4844.493/26/2014
MACMacerich Co/The55.744.46111.532/19/2014
POTPotash Corp of Saskatchewan Inc34.994.4564.424/8/2014
NANational Bank of Canada83.24.4438.363/25/2014
DUKDuke Energy Corp70.464.43100.422/12/2014
PNWPinnacle West Capital Corp51.284.475.484/29/2014
KIMKimco Realty Corp20.464.39356.183/31/2014
PCGPG&E Corp41.524.3895.713/28/2014
PEGPublic Service Enterprise Group Inc33.234.3356.313/7/2014
SCGSCANA Corp46.834.3361.83/11/2014
EXCExelon Corp28.974.28147.722/12/2014
AEEAmeren Corp37.664.25N/A3/10/2014
ARXARC Resources Ltd28.494.21256.752/26/2014
PCLPlum Creek Timber Co Inc42.034.2133.832/19/2014
FTSFortis Inc/Canada30.524.273.332/12/2014
MATMattel Inc36.054.255.082/18/2014
IRMIron Mountain Inc25.94.17196.453/19/2014
LEGLeggett & Platt Inc29.064.1389.993/12/2014
AEPAmerican Electric Power Co Inc48.314.1364.172/6/2014
BNSBank of Nova Scotia60.594.1246.063/28/2014
CNPCenterPoint Energy Inc23.054.1182.972/12/2014
GRMNGarmin Ltd43.634.1164.783/13/2014
KRFTKraft Foods Group Inc51.124.118.053/27/2014
WMBWilliams Cos Inc/The39.334.08102.533/12/2014
SLFSun Life Financial Inc35.434.0761.122/24/2014
FCXFreeport-McMoRan Copper & Gold Inc31.084.0284.824/11/2014
GASAGL Resources Inc46.933.9974.912/19/2014
RYRoyal Bank of Canada68.53.9445.24/23/2014
CMSCMS Energy Corp27.423.9359.82/5/2014
POWPower Corp of Canada29.63.9264.183/19/2014
XELXcel Energy Inc28.613.958.073/18/2014
DTEDTE Energy Co67.973.8562.013/20/2014
TRPTransCanada Corp48.283.8295.523/26/2014
CVCCablevision Systems Corp15.853.8483.893/12/2014
NEMNewmont Mining Corp21.023.836.873/14/2014
SESpectra Energy Corp35.343.7880.172/12/2014
AVBAvalonBay Communities Inc123.293.77932.943/27/2014
INTCIntel Corp23.953.7646.52/5/2014
AIVApartment Investment & Management Co27.723.76N/A2/12/2014
TTELUS Corp38.443.7560.353/5/2014
RCI/BRogers Communications Inc46.073.7547.353/12/2014
SPLSStaples Inc12.93.73N/A3/26/2014
LLYEli Lilly & Co52.663.7245.382/12/2014
CINFCincinnati Financial Corp47.613.762.473/17/2014
HSEHusky Energy Inc32.53.6959.733/5/2014
WECWisconsin Energy Corp42.193.6950.582/12/2014
GEGeneral Electric Co24.353.6153.212/20/2014
TDToronto-Dominion Bank/The47.893.6146.724/2/2014
LMTLockheed Martin Corp147.743.6522/27/2014
PSAPublic Storage155.863.59114.783/10/2014
CVXChevron Corp111.143.5934.92/12/2014
DDominion Resources Inc/VA67.123.5872.882/26/2014
WMWaste Management Inc413.5680.583/4/2014
MCDMcDonald's Corp93.023.4955.52/27/2014
TRIThomson Reuters Corp39.443.4651.282/25/2014
FFord Motor Co14.553.45224/28/2014
PAYXPaychex Inc40.43.4583.785/8/2014
TCK/BTeck Resources Ltd26.293.4261.376/11/2014
GMGeneral Motors Co35.253.4203/14/2014
PFEPfizer Inc30.63.3957.672/5/2014
CVECenovus Energy Inc28.533.3866.973/7/2014
NUNortheast Utilities43.453.3871.42/28/2014
MRKMerck & Co Inc52.083.3883.873/13/2014

Annual sales growth (%)

TickerNamePricePE RatioPE Next YearReturn YTDSales GrowthAnalyst ratingBook ValueBetaRevenue/Share
FBFacebook Inc64.851108.4638.0217.0954.694.676.070.643.25

Based on latest estimates, Blue Nile’s PE ratio is almost twice that of Netflix, incredible given the fact that these companies are both in high growth mode. One of reasons why Netflix’s stock has been suffering is because of competition and possibilities that it could lose some studios movies. For example, rumors are that Disney is advanced in negotiations with Liberty Media Corp (LSTZA) to gain exclusive streaming rights to its movies. And with Redbox, Blockbuster, Apple, Youtube, Hulu and others fighting for content, the battle is on. But Netflix does have a good position and there is no reason to believe that these concerns will affect the company’s results too much in the coming months.
And finally, to complete the analysis, take a look at the graphs of both companies:

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  1. Comment by Doctor Stock — January 18, 2010 @ 2:22 pm

    Thanks… it is interesting to read your perspective on Netflix – I really appreciate your focus on sales… to me, revenues are critical – far more than eps.

  2. Comment by IS — January 19, 2010 @ 8:58 pm

    For this trade: opening prices:

    NFLX: 50.95
    NILE: 58.41


  4. […] of a tendency for me. So far this year, I have made a short trade on Blue Nile against Netflix in January (+63%) and also in April (+19%). Then, I went short again in May against Apple (+21%). Going short 4 times […]

  5. Comment by pumper_dumper — October 27, 2010 @ 8:45 am

    Wow! so the editor removes informative posts about insider sales, i could not intelligently speculate that!!

  6. Comment by IS — October 27, 2010 @ 8:56 am

    @pumper_dumper – what do you mean?

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