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Forget the positives, Netflix is a 'greater fool' stock, says this analyst

Reed Hastings, chief executive officer of Netflix Inc.
Akio Kon | Bloomberg | Getty Images
Reed Hastings, chief executive officer of Netflix Inc.

Despite the fact that Netflix has mastered the flow of its customers, reduced churn and consistently pushes out "really big shows" that keeps subscribers coming back, analyst Michael Pachter of Wedbush Securities told CNBC on Monday that it is a "greater fool stock."

"And the greater fool has this belief that's wrong that they are going to grow [subscribers] forever and one day jack up price and keep the excess price increase," said Pachter.

"The truth is their content costs will rise as they choose to raise prices," he said.

On Power Lunch, Pachter said an inevitable increase in competition will also make it harder for the company to justify its elevated stock price. "I think that's going to attract more competition, they are never going to make the profits that justify a $145 stock," he said.

But he says as "long as investors will pay for subscriber growth and as long as Netflix delivers it, the stock will go up."

Still, Pachter isn't confident the company will be able to recoup its losses. "The negative free cash flow will be $500 million this quarter and probably get worse throughout the year." Netflix reports earnings after the bell Monday.