Netflix is one of the two companies that I heard most frequently in Comm101 (There is not doubt that the other one is Lululemon). Even I never hear of this firm before I came to Vancouver, I can feel that it is a very potential enterprise and Netflix has already become a hotspot in commerce after its IPO. However, I notice that Netflix’s PE ratio is extremely high. In general, S&P 500 average PE ratio is nearly from 15 to 20 but Netflix’s is about 300. What’s that means?

PE ratio is A ratio of a company’s share price compared to its per-share earnings. At the time, Netflix ‘s share price overweigh its per-share earnings near 300 times. It means that investors have very high expectation to Netflix’s profitability and in order to meet the expectation, Netflix must try its best rise the company’s earnings.

Whether a company will make profits does not related to how much earning expectation investors have to the company. Now Netflix is facing both an opportunity and a challenge and whether the company can continue to succeed is unknowable to everyone. Investors should not blindly believe the potential without any analysis.

Picture from: http://scm-l3.technorati.com/13/06/17/76575/netflix-logo.jpg?t=20130617122322

Reference: http://finance.yahoo.com/news/realize-netflix-pe-ratio-implies-151408562.html