Is the market finally noticing the mounting challenges facing Netflix (NASDAQ:NFLX) and the excessive risk in its stock? Based on recent price movement, the answer would be no. However, with Macquarie Capital recently downgrading Netflix to underperform, and others questioning NFLX’s valuation, the issues, which we highlighted long ago, that face the company are slowly coming to light.
Those issues include: unprofitable international expansion, dwindling competitive advantages, and a sky-high stock valuation. For a long time, the market has largely ignored these concerns. When investors really finally accept the truth about this company and stock, Netflix could be in for a big sell-off.
Issue #1: Declining Margins Equal Growing Losses
When we first placed Netflix in the Danger Zone in November 2013, we noted that the company’s margins were facing pressure from the decline in DVD memberships (most profitable segment) and the exorbitant costs of expandin g internationally. This trend continues today as Netflix’s after-tax profit (NOPAT) margins have declined from 8% in 2010 to 3% over the last twelve months (TTM), per Figure 1.
mutual funds: Clean Energy Fuels Corp.(CLNE)
- [By Michael Vodicka]
Clean Energy Fuels Corp. (CLNE) designs, builds and operates natural gas filling stations in the United States. The company supplies compressed natural gas (CNG) and liquefied natural gas (LNG), serving a fleet of 650 customers, more than 32,000 natural-gas vehicles while owning or supplying more than 350 filling stations in 32 states.
- [By Lisa Levin]
In trading on Wednesday, energy shares fell by 1.72 percent. Meanwhile, top losers in the sector included Clean Energy Fuels Corp (NASDAQ: CLNE), down 5 percent, and Frontline Ltd. (NYSE: FRO), down 7 percent.
- [By Jason Hall]
Natural gas for transportation leader Clean Energy Fuels Corp (NASDAQ:CLNE) has steadily grown and improved the quality of its business and business results over the past several years. Today’s Clean Energy Fuels is leaner, has a stronger balance sheet, and is in a solid position as a market leader in a growth industry.
mutual funds: Allied Motion Technologies, Inc.(AMOT)
- [By Jim Robertson]
On Friday, our Under the Radar Moversnewsletter suggestedsmall cap precision and specialty motion control stock Allied Motion Technologies (NASDAQ: AMOT) as a possible long position:
mutual funds: Green Mountain Coffee Roasters Inc.(GMCR)
- [By David Sterman]
But for short sellers in Green Mountain Coffee Roasters (Nasdaq: GMCR), there's another outcome: They've been badly burned as shares have surged, but they insist they've been right all along, and it's only a matter of time before the stock crashes and burns.
- [By Jonas Elmerraji]
As badly as short sellers want to hate on Green Mountain Coffee Roasters (GMCR), betting against the multiyear rally in this $12.7 billion beverage stock has been about as wise as eating from a box with a skull and crossbones on it. And as a bull market continues to lift all ships, Green Mountain’s ship is going to keep floating above the others.
Green Mountain owns Keurig, the brand of beverage brewers that use self-contained K-Cups to make coffee, teas, and other drinks. While Keurig’s “fad” status has certainly helped tip the deck against GMCR, the fact remains that the firm has done most of the hard work in getting Keurig machines accepted by consumers. With brewers essentially ubiquitous at this point, the firm is able to make money on its cash cow: the K-Cups.
Keurig’s individual-serving cups have big margins and a big installed base. With huge convenience and the relatively large sunk cost that consumers have put into their Keurig machines, it’s a sticky business with big switching costs. Consumers who buy a Keurig are much less likely to spend the money on a competing brand of proprietary coffee pods.
I’ve said before that GMCR is far from cheap right now. But its momentum trajectory is showing few signs of fizzling out, especially as direct competitors such as Starbucks (SBUX) continue to sell K-Cups of their own. Don’t bet against GMCR in September – buy this Rocket Stock instead.
- [By Canadian Value]
So Im going to stick my next out and share my views on four battleground stocks that are among my favorite shorts: World Acceptance (WRLD), Green Mountain (GMCR), Herbalife (HLF), and InterOil (IOC). And next week at the Value Investing Congress I will present another short, my largest.
mutual funds: Glaukos Corporation(GKOS)
- [By Nelson Hem]
In "Skeptics Eye Potential Trouble for Glaukos," Vito J. Racanelli suggests that, even though Glaukos Corp (NYSE: GKOS) has warned that it might lose money this year, Wall Street appears to be betting otherwise. This eye-stent maker has had success with a breakthrough product and dominates its market, but formidable competition still looms.
mutual funds: Universal Health Services, Inc.(UHS)
- [By Ben Levisohn]
Universal Health Services (UHS) slumped to the bottom of the S&P 500 today after getting downgraded by Raymond James.
Universal Health Servicesdropped 6.8% to $101.55 today, while the S&P 500 fell 0.8% to 2,253.28.
Raymond James analyst John Ransom and team explain why they cut Universal Health Services to Market Perform from Outperform:
We are lowering our rating onUniversal Health Services to a Market Perform (from an Outperform) due to an escalation in events surrounding last weeks Buzzfeed article. Last Friday (12/9), Senator Grassley, Chair of the Judiciary Committee, sent a letter…to the office of inspector general regarding details of the current federal investigation into Universal Health Services. Specifically, the letter rehashes the Buzzfeed article and requests an update on the investigation by Dec. 23. Our view is that – even ifUniversal Health Services management is correct on the legalities – we think the entrance of the venerable Senator Grassley into the mix takes the political risk to a more dangerous level. Plus – even if “suicide ideation” doesn’t generate additional revenues per admission, we think it’s possible that the heightened political scrutiny could invite more caution and/or red tape into the admissions process – eith er externally or from self-policing. Add in the ongoing OIG investigation, and we think the risk-reward is no longer compelling.
Universal Health Services’ market capitalization fell to $9.8 billion today from $10.6 billion yesterday. It reported net income of $680 million on sales of $9 billion in 2015.
- [By Paul Ausick]
Universal Health Services Inc. (NYSE: UHS) lost 8.4% Wednesday to post a new 52-week low of $1/99.81 after closing Tuesday at $108.99. The 52-week high is $139.77. Volume of around 5.8 million was nearly 6 times the daily average of around 1 million shares traded. Raymond James downgraded the stock this morning on news of another request for information from the company related to a federal investigation.
- [By Ben Levisohn]
Universal Health Services (UHS) tumbled to the bottom of the S&P 500 today after BuzzFeed published an investigative story alleging that the company’s psychiatric hospitals put profits ahead of people.
Shares of Universal Health Services dropped 12% to$111.30 today, while the S&P 500 rose 1.3% to 2,241.35, a record high.
Universal Health Services’ stock had been minding its business for most of the day–it was up 1.1% at $127.76 at 3:10 p.m. today–when the story by BuzzFeed’s Rosalind Adams went live. Here’s the gist:
Millwood Hospital is part of Americas largest psychiatric hospital chain, Universal Health Services, or UHS. Its more than 200 psychiatric facilities across the country admitted nearly 450,000 patients last year. The result was almost $7.5 billion in revenues from inpatient care last year and profit margins of around 30%. More than a third of the companys overall revenue from both medical hospitals and psychiatric facilities comes from taxpayers through Medicare and Medicaid.
A yearlong BuzzFeed News investigation based on interviews with 175 current and former UHS staff, including 18 executives who ran UHS hospitals; more than 120 additional interviews with patients, government investigators, and other experts; and a cache of internal documents raises grave questions about the extent to which those profits were achieved at the expense of patients.
Universal Health Services market capitalization dropped to $10.7 billion today from $12.3 billion yesterday. It reported net income of $680 million on sales of $9 billion in 2015.
- [By David Zeiler]
Fear that expense could return if Obamacare is repealed hammered hospital stocks on Nov. 9. HCA Holdings Inc. (NYSE: HCA) fell almost 11%. Universal Health Services Inc. (NYSE: UHS) slipped nearly 7%. And Tenet Healthcare Corp. (NYSE: THC) plummeted almost 25%.