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Cramer Swoon, Netflix Boon

9 Apr, 2009 By: Erik Gruenwedel


He endured a smack down by Jon Stewart on Comedy Central’s “The Daily Show,” but when Jim Cramer, host of CNBC’s “Mad Money,” recently heaped bullish praise on Netflix, the Wall Street darling’s stock surged.

Shares of the Los Gatos, Calif.-based online DVD rental pioneer April 9 closed up $2.67 to a 52-week high of $46.95 per share. The company’s shares are up more than 48% year-to-date.

In an article on TheStreet.com, which he co-founded, Cramer said Netflix had become a shrewd operator, superseding, in his opinion, not only rival Blockbuster Inc. but also brick-and-mortar and online retail behemoths Wal-Mart and Amazon, respectively.

The analyst considers Netflix’s fiscal 2009 estimates too cautious — the only company he said he felt that way about.

“I have to tell you, this has incredible momentum,” Cramer said. “Netflix is a winner, and I'm not backing away.”

Indeed, Netflix’s P/E ratio (price-per-share divided by annual earnings per share) is considered relatively high at $33.50, according to analysts, which means a new investor is paying $33.50 for every dollar of earnings.

The ratio is attracting options investors (who believe the company’s stock will increase or decline, respectively) as underscored by a video segment devoted to option strategies on TheStreet.com.

Options are financial instruments that give an investor the right to buy (for a call option) or sell (for a put option) the underlying security until a specific point of time in the future. “Calls” generally increase in value as the stock prices rises; “puts” increase in value when the stock declines in value.

As a policy, Netflix said it does not officially comment on stock valuations.

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