Investing

Jim Cramer says Netflix 'has become an open sore to this market'

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Jim Cramer: Netflix has become an open sore to the market

The once-beloved Netflix is now negative for the year as investors start to question some of the high-flying leaders of this bull market.

"Netflix has become an open sore to this market," CNBC's Jim Cramer said on "Squawk on the Street" on Tuesday.

Netflix went into negative territory for the year on Monday as increased competition in the streaming wars and a slump in subscriber additions worried investors about the future of the highly-valued technology stock.

"In order to keep up with the other companies, they think they have to spend more," said Cramer. "I often think, no, they have to be a little more clever with their spend."

Shares of Netflix have tanked nearly 30% since early April, when Disney announced the low $6.99 price for its new streaming service, Disney+, set to launch in November. Streaming launches from Apple, AT&T's WarnerMedia, NBC and HBO are also on the horizon, making for a crowded streaming space.

Before the announcement of Disney+, there were times when Netflix's market cap was higher than Disney's. Now, Disney's market cap, at $238 billion, is double Netflix's market value of $116 billion.

Further weighing on the stock, last month Netflix was hit by a rare loss in the number of U.S. subscribers and a large miss on international subscriber adds in the second quarter, which sent the stock cratering, suffering its longest losing streak in five years.

"The signs-ups are going to start going down, and this thing's controlled by the sign-ups," Cramer said of Netflix.

Cramer said if he owned Netflix's stock he would sell it. Shares of Netflix sank 4.26% on Tuesday, hitting its lowest level of 2019. 

Netflix isn't the only overvalued stock that Cramer is warning investors about.

On Monday, Cramer said investors need to be cautious as more and more stocks are being valued based on measures other than the revenue or earnings numbers. He even likened the current market conditions to the dot-com bubble, when internet stocks rose and eventually collapsed, shedding nearly 80% of value within seven months in 2000.

"You have to be skeptical of markets, entire markets, where more and more stocks are valued on something other than earnings," said Cramer. "The more stocks that trade on weird metrics, the more likely it is that the market's overvalued."

Disclosure: NBC is part of NBCUniversal, the parent company of CNBC.