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Company name Netflix, Inc.
Stock ticker NFLX
Live stock price [stckqut]NFLX[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Good
EPS growth Poor
P/E growth Good
EBIT growth Poor

ANALYSIS

Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $498.06
Target stock price (averages with growth) $576.14
Target stock price (averages with no growth) $292.24
Target stock price (manual assumptions) $334.39

The following company description is from Google Finance: http://www.google.com/finance?q=nflx

Netflix, Inc. is an Internet television network with more than 33 million members in over 40 countries. In the United States, the Company’s subscribers can receive standard definition digital versatile disc (DVDs), and their high definition successor, Blu-ray discs (collectively DVD), delivered quickly to their homes. The Company operates in three segments: Domestic streaming, International streaming and Domestic DVD. Domestic and International streaming segments derive revenues from monthly subscription services consisting solely of streaming content. The Domestic DVD segment derives revenues from monthly subscription services consisting solely of DVD-by-mail.

 

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in Netflix, Inc. as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(s2member_level1)]
In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

Stock price at the time of the calculation: $322.06

Growth: 0.15

Current EPS (TTM): $1.19

P/E: 225

Future EPS Calc: $2.39

Future Stock Price Calc: $538.54

Target stock price: $334.39

I hope that this makes you a better investor. [/s2If]

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ID-10011733As you evaluate performance and price, you should take care to compare companies in the same peer group. When you find an interesting company, you want to make sure it is appropriately priced compared to companies that are in the same basic market segment. These other companies may or may not be direct competitors, but rather are similar in the types of products that they sell and the customers that they serve.

It is important that you do not compare companies that are apples and oranges. You will get few insights as to the quality of the stock by doing this comparison.

It is not fair to compare companies to Apple [stckqut]AAPL[/stckqut] PepsiCo [stckqut]PEP[/stckqut], Cisco Systems [stckqut]CSCO[/stckqut], or General Electric [stckqut]GE[/stckqut] if they are not in the same market segment. You need to compare them against their peer group to make sure that they are managed effectively as compared to their industry norm.

You should not to worry about a standard for P/E for all companies. P/E is the market capitalization of the company divided by its earnings. There are analysts that will create some arbitrary standard on what a reasonable P/E should be. This is not helpful. If you compare companies that are not in the same segment, the P/E of the two companies can be wildly different and probably should be different. They are in different markets with different customer needs that are being fulfilled. Why would you expect that when you compare companies in dissimilar industries that they would be priced the same?

It is appropriate, however, to use P/E to compare companies that are in the same peer group. These companies sell to the same customers and make their products in a similar way.

In general, you want to compare companies and choose those that are better respected than their peers. P/E is a sign of respect from the investment community. The higher the price, the more the investment community respects the company and actively buys the stock. So you want your company to have a higher P/E than its peers.

You do not need to be an expert in each industry to identify its peer group. Others have done this work for you. The easiest way to identify the peer group of a company is to go to Google Finance. You can simply type in the company you are interested in exploring and the site will give you 10 companies that are in the same vertical.

My book, The Confident Investor, goes into great detail how to prioritize P/E among its peer group as you evaluate a stock. You can purchase my book wherever books are sold such as Amazon, Barnes and Noble, and Books A Million. It is available in e-book formats for Nook, Kindle, and iPad.

Image courtesy of Suvro Datta / FreeDigitalPhotos.net

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Company name Lululemon Athletica inc.
Stock ticker LULU
Live stock price [stckqut]LULU[/stckqut]
P/E compared to competitors Fair

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Good
EPS growth Good
P/E growth Poor
EBIT growth Good

ANALYSIS

Confident Investor Rating Good
Target stock price (TWCA growth scenario) $72.51
Target stock price (averages with growth) $129.57
Target stock price (averages with no growth) $119.85
Target stock price (manual assumptions) $65.12

The following company description is from Google Finance: http://www.google.com/finance?q=lulu

lululemon athletica inc. is a designer and retailer of technical athletic apparel operating primarily in North America and Australia. The Company’s yoga-inspired apparel is marketed under the lululemon athletica brand name. The Company offers a range of performance apparel and accessories for women, men and female youth. Its apparel assortment, including items, such as fitness pants, shorts, tops and jackets, is designed for healthy lifestyle activities such as yoga, running and general fitness. The Company’s fitness-related accessories include an array of items, such as bags, socks, underwear, yoga mats, instructional yoga digital versatile discs (DVDs) and water bottles. As of January 29, 2012, its branded apparel was principally sold through 174 stores that are located in Canada, the United States, Australia and New Zealand.

 

Confident Investor comments: At this price and at this time, I think that a Confident Investor can confidently invest in Lululemon Athletica inc.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(s2member_level1)]
In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

Stock price at the time of the calculation: $46.98

Growth: 0.18

Current EPS (TTM): $1.91

P/E: 24

Future EPS Calc: $4.36

Future Stock Price Calc: $104.87

Target stock price: $65.11

I hope that this makes you a better investor. [/s2If]

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Company name Altria Group Inc
Stock ticker MO
Live stock price [stckqut]MO[/stckqut]
P/E compared to competitors Good

MANAGEMENT EXECUTION

Employee productivity Good
Sales growth Poor
EPS growth Poor
P/E growth Poor
EBIT growth Poor

ANALYSIS

Confident Investor Rating Poor
Target stock price (TWCA growth scenario) $27.65
Target stock price (averages with growth) $32.29
Target stock price (averages with no growth) $30.3
Target stock price (manual assumptions) $35.84

The following company description is from Google Finance: http://www.google.com/finance?q=mo

Altria Group, Inc. is a holding company. At December 31, 2012, Altria Group, Inc.’s direct and indirect wholly owned subsidiaries included Philip Morris USA Inc. (PM USA), which is engaged in the manufacture and sale of cigarettes and certain smokeless products in the United States; John Middleton Co. (Middleton), which is engaged in the manufacture and sale of machine-made cigars and pipe tobacco, and is a wholly owned subsidiary of PM USA; and UST LLC (UST), which through its direct and indirect wholly owned subsidiaries, including U.S. Smokeless Tobacco Company LLC (USSTC) and Ste. Michelle Wine Estates Ltd. (Ste. Michelle), is engaged in the manufacture and sale of smokeless products and wine. Philip Morris Capital Corporation (PMCC), another wholly owned subsidiary of Altria Group, Inc., maintains a portfolio of leveraged and direct finance leases. In addition, Altria Group, Inc. held approximately 26.9% of the economic and voting interest of SABMiller plc (SABMiller).

 

Confident Investor comments: At this price and at this time, I do not think that a Confident Investor can confidently invest in Altria Group Inc.

If you would like to understand how to evaluate companies like I do on this site, please read my book, The Confident Investor.

For owners of my book, “The Confident Investor” I offer the following analysis (you must be logged in to this site as a book owner in order to see the following analysis). If you have registered and cannot see the balance of this article, make sure you are logged in and refresh your browser.
[s2If current_user_can(s2member_level1)]
In order to assist you in using the techniques of this book, the values that I used when calculating the Manual pricing above were:

Stock price at the time of the calculation: $36.98

Growth: 0.1

Current EPS (TTM): $2.56

P/E: 14

Future EPS Calc: $4.12

Future Stock Price Calc: $57.72

Target stock price: $35.84

I hope that this makes you a better investor. [/s2If]