How to Play Netflix Shares Following Earnings (Nasdaq: NFLX)

Netflix shares immediately climbed 10% in after-hours trading today (Wednesday) following the company's Q2 2015 earnings report.

netflixNetflix Inc. (Nasdaq: NFLX) officials reported an earnings per share (EPS) beat of $0.06, compared to an estimate of $0.04.

Revenue was reported at $1.64 billion, which was a slight miss from analysts' estimates of $1.65 billion. Despite the miss, revenue was up 22.4% from last year.

The biggest number in the report was the total user figure, which reached 65 million people globally. In Q2, NFLX added 3.28 million users, which was up from just 1.7 million users last year. Analysts had expected 2.46 million new users.

The company now has 42 million users in the United States and 23 million international users. Most of this quarter's new users (2.4 million) were international. The company reported that international revenue also grew 48% year over year.

Officials announced that Netflix's expansion into Asia will begin in Q3. It will offer its services in Japan first.

The Netflix stock split was also big news for the company today. The company held a 7-for-1 stock split this morning, meaning shareholders of record as of July 2 received six shares for every one they previously owned. It also means the share price came down from roughly $700 each to about $100 each.

"At a lower price point, there's a perception the stock is more accessible," Netflix spokeswoman Anne-Marie Squeo told Bloomberg in April.

In a filing from April, Netflix officials also said issuing new stock would allow better flexibility for dividends, equity financing, and acquisitions.

Now, there is increased interest in Netflix shares thanks to the lower price and earnings beat. But is now the best time to buy Netflix stock?

How to Play Netflix Shares Now

It's important to remember that while the price of Netflix shares is much lower, their value has remained the same.

Right now, Netflix's P/E ratio is 166, according to Nasdaq. For comparison, Apple has a P/E ratio of 15.6, and Microsoft has a P/E ratio of 19.

Money Morning Technical Trading Specialist D.R. Barton, Jr. says Netflix has shown strong user growth and has great content, but it's just too risky of a buy now.

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"Netflix stock is a little rich for my blood right now," Barton said on FOX Business in May. "I'm not a seller; I'm recommending a hold on this stock right now. If you have it in your portfolio already, then keep it. There is some upside here, but not enough upside to put new money to work."

"They've done a great job of growing that subscriber base, but I don't see it at these elevated levels," Barton continued. "Let's wait for them to have a little pullback before putting new money in Netflix."

Another 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 19.2, according to Nasdaq. That means it is heavily overvalued.

The Bottom Line: Netflix shares are climbing after the company posted strong user, EPS, and revenue growth. But now is not the best time to buy into NFLX stock. It has had a strong run, but it is one of the most overvalued stocks on the market.

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