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Is Netflix the Most Overvalued Stock on the Street?

Tuesday, 25 Jan 2011 | 6:07 PM ET

Is Netflix the most overvalued stock on the Street? Or is it heading to new highs? With earnings due after the bell on Wednesday, and shares of Netflix up 280% over the past year, it seems like a good time for Fast Money 360.

Find out what fundamentals, technicals and insights from the options world all suggest lie ahead for this stock.

Fast Money 360: Netflix
Your trade on Netflix ahead of earnings.

FUNDAMENTALS

Wedbush Securities Analyst Michael Pachter is negative. “I have a sell rating on Netflix. It’s a $180 stock that should be an $80 stock,” he says.

As you may remember, Netflix was a darling of 2010 but Pachter thinks the love is misplaced. “The Street doesn’t get it,” he says. While I think they are going to grow, they are not going to grow as much as their current $180 price.”

In a nutshell, Pachter thinks the numbers just don’t add up. “Their content costs are going from $200 million to about $850 million," he explains. "(Although) at the same time we are probably going to see their DVD and postage costs drop by about $350 million, net we're looking at something like $300 million in higher costs."

CHARTS

Robin Mesch of Robin Mesch Associates sees Netflix very differently. Patterns in the charts look bullish to her.

In fact, “Netflix is my top pick for the quarter and perhaps for the year,” she says.

Worried the stock is ahead of itself?

According to Mesch, don’t be. ”A lot of technicians might say that it has come too far too fast from current levels, and that would be a good thing because if we do get a decent pullback here I would see that as a really great buying opportunity,” she says.

OPTIONS

Based on the options activity Scott Nations of NationsShares is bearish.

”As you might expect from a stock that has been up 265% over the last 52 weeks, I'm seeing lots of put buying to protect gains – the 160 and 165 puts – are particularly active. If you are long Netflix, congratulations, but a lot of people want to protect those gains.”

OTHER INSIGHTS

"If you’re not already in this stock, I wouldn’t play earnings," says Joe Terranova. "The potential on the downside and the upside is too great. The risk is not worth the reward."



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Trader disclosure: On Jan. 25, 2011, following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Adami's wife works for (MRK); Terranova Owns (UPL); Terranova Owns (VRTS); Terranova Owns (PVH); Terranova Owns (GM); Terranova Owns (CVI); Terranova Owns (CNQ); Terranova Owns (LTD); Terranova Owns (C); Terranova Owns (PEP); Terranova Owns (CPX); Terranova Owns (ARUN); Terranova Owns (MS); Terranova Owns (RSH); Terranova is short Gold; Terranova owns (POT); Terranova owns (CRM); Terranova owns (FCX); Brown owns (AAPL); Brown owns (BAC); Brown owns (C); Brown owns (GLD); Brown owns (GDXJ); Brown owns (GOOG); Brown owns (JPM); Brown owns (MSFT); Brown owns (QCOM); Brown owns (WFC

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