A stock crash could spell trouble for high-flyers like Netflix. The DVD-rental company's shares are up 220% in the past year and six-fold since the start of 2009. It's hard to argue against its success: Netflix outsmarted nearly everyone in the recession, adding millions of customers along the way.
But if you're betting on crash, shorting Netflix is a good place to start. As hedge fund manager Whitney Tilson, who is short Netflix, recently wrote on the blog Seeking Alpha, "By any measure, Netflix's valuation is extremely rich." The stock currently trades for about 70 times trailing one-year earnings, and 49 times analysts' estimates for next year's earnings. The S&P 500, by comparison, trades for 14 times next year's earnings. "In short," Tilson writes, "the stock is priced for perfection, and any misstep would likely trigger a huge selloff."
Even without a misstep, any stock priced for perfection in a falling market is bound to fall even harder.
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