How high can Netflix (NFLX) go?

Over the past 12 months Netflix Inc (NFLX) shares have traded between $44.3 and its 52-week high of $167.12.  Netflix Inc shares are now trading with a P/E Ratio of 65.7 and EPS of 2.47.

Shares of Netflix have nearly quadrupled in the last year. This begs the question, is Netflix a bubble that could burst any day?

Don't get me wrong, the company has a lot going for them. They recently announced news that the company expanded outside of the U.S. for the first time by offering Canadians its streaming services for $7.99 a month.

Then there is the Chapter 11 Bankruptcy by rival Blockbuster. However, the headlines today about Blockbuster’s demise are somewhat misleading.

Blockbuster’s filing for bankruptcy doesn’t state that the company will be shutting down its business. Chapter 11 implies protection from the debt and debtors essentially remain in control of the company’s operations. Blockbuster should be able to get rid of  about $900 million in debt.  Moreover, Blockbuster’s senior note-holders have agreed to support the restructuring plan and provide $125 million of debtor-in-possession financing to help the company operate while in bankruptcy.

Blockbuster focuses on digital distribution

It is likely that a restructured Blockbuster, largely free of debt, will be able to operate more efficiently and compete better with the likes of Netflix as it focuses more on digital distribution.  The shift in Blockbuster’s strategy and greater focus may end up being detrimental to Netflix’s long-term subscriber growth.

Bottom Line:

Netflix chart just screams BUBBLE. But who knows when it will burst?

In the United States, analysts expect the company to begin closing some of its 58 distribution centers as DVD rentals decline. The company has said it is not making any more major investments in the centers.

Mr. Blackledge of Credit Suisse predicts that Netflix’s DVD business will peak in 2012 and then slowly decline. Shifting people to watching movies online will save Netflix some of the $700 million it spends annually on postage.