Should I Buy Netflix Stock?

Netflix Inc. (Nasdaq: NFLX) has been one of the biggest winners of 2015, having gained more than 65% year to date. That compares to a gain of just 0.8% for the Dow Jones and 2.1% for the S&P 500 during the same time.

Now, shares are priced over $565 per share. They hit an all-time high of $576.13 after reporting Q1 earnings in mid-April.

And that has many investors asking us the same question: "Should I buy Netflix stock?"

To understand where NFLX stock is going, we have to look at what's fueled its run in 2015... then you will see if Netflix stock is the right investment for you...

What's Behind Netflix Stock's 2015 Tear

buy Netflix stockOn April 15, Netflix reported earnings per share (EPS) of just $0.38 for Q1. Estimates had called for EPS of $0.69. Revenue was in line with expectations at $1.57 billion for the quarter.

But NFLX stock still soared more than 17% the following day.

The first reason investors looked past dismal earnings numbers was the firm's strong user growth. Netflix's global user total reached 62.3 million in Q1. The company's goal had been 60 million. In the first quarter alone Netflix added 4.9 million new members.

Of those additions, 2.6 million were international compared to the company's forecast of 2.25 million. Netflix has been working to grow its international user base and this quarter's performance was a huge success. Netflix is now available in over 50 countries.

The third reason the stock has soared is the company's focus on original programming. The third season of "House of Cards" as well as new shows "Unbreakable Kimmy Schmidt" and "Bloodline" were highly touted by the company in Q1.

While Netflix stock has been unstoppable in 2015, it doesn't mean retail investors should buy in now. In fact, here are two major areas of concern for shareholders in 2015...

Should I Buy Netflix Stock?

The first area of concern for those looking to buy Netflix stock is competition.

Apple Inc. (Nasdaq: AAPL) unveiled a streaming TV service in March that will cost users about $30 to $40 a month. The service will launch this fall and feature roughly 25 channels including CBS, NBC, and FOX.

HBO launched its own standalone service called HBO Now earlier this month.

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It costs users about $14.99 per month and is available on Apple devices.

Netflix CEO Reed Hastings said HBO was Netflix's biggest competitor in 2011. Now that competitor has entered Netflix's home market.

"Netflix has too much competition in everything it's trying to do," Money Morning's Capital Wave Strategist Shah Gilani said on FOX Business. "I don't know whether it's a tech company, a content company, or whether it's a distribution company. And in all of those areas it has plenty of competition."

That's not the only reason to be cautious with Netflix stock...

NFLX is also one of the most volatile stocks on the market.

"If you owned this stock in the third quarter, on Oct. 15 you thought, 'This is a great stock.' On Oct. 16, it opened down 25%," Gilani said. "I don't like to wake up a quarter of my investment gone."

Money Morning's Defense and Tech Specialist Michael Robinson agrees. The company offers a great product, but the stock is extremely risky for retail investors.

"I love the company and am an avid user of the product. My teenage daughters are on it all the time," Robinson said. "However, at NFLX stock's current price I have it as a hold. Not because I doubt the company's overseas growth trajectory, but Apple's new bundled streaming service is coming out in the fall. I'd like to see how that plays out."

"Plus, it's been pretty volatile over the last several months and I would rather have stability in this market," Robinson said.

A good barometer for a stock's value is its price/earnings to growth (PEG) ratio. A PEG ratio of 1.0 is considered fair value for a company.

Right now, Netflix has a PEG ratio of 15.8, meaning it is heavily overvalued. By comparison, Apple's PEG ratio is just 1.16 today.

Plus, buying 100 shares of NFLX stock right now would cost investors more than $56,000. Not the easiest proposition for retail investors.

But just because we don't recommend investors buy Netflix stock right now doesn't mean there isn't a way to profit.

Money Morning Special Contributor Tom Gentile just found a way to make a 280% profit on NFLX stock, even after the stock's most recent run-up. And whether the stock goes up or down from here, his strategy could bring huge profits to retail investors...

The Bottom Line: Despite its 65% run in 2015, we do not recommend that retail investors buy Netflix stock now. NFLX is priced extremely high, and is one of the most volatile stocks on the market. It is also facing increased competition from major players like Apple and HBO. If you do already own Netflix stock, it's a hold.