Is this a short stumble for Netflix, or is the competition heating up too fast for them to keep up?
Many investors are left scratching their heads on Thursday, as they watched Netflix tumble after reporting a subpar quarter on Wednesday night.
Jim Cramer refers to Netflix as a "cult stock"—that is, stocks such as Amazon, Netflix and Tesla that have so captured America's heart with exciting press releases that they generally don't have to show earnings when they report. So how did this disaster for Netflix happen? The "Mad Money" host explains:
To start, Cramer thinks that expectations were just too high for this stock going into the quarter. The stock has rallied from $60 to the mid $400's, and investors just weren't able to justify the price at this level.
"Netflix has been the consummate high-flier and you really couldn't justify its sky-high price-to-earnings multiple based on the company's 33 percent growth rate," added Cramer.