Netflix, Inc. (NFLX), Apple Inc. (AAPL): This Company’s Virtuous Circle Can Only Grow so Far

What goes up…

Investors are an emotional bunch over short periods of time. For a prime example, look no further than Apple Inc. (NASDAQ:AAPL). At one point, it seemed like Apple Inc. (NASDAQ:AAPL) could do no wrong and investors bid the shares up to amazing heights. Fairly quickly, however, Wall Street came to the conclusion that sales wouldn’t grow to the sky and Apple Inc. (NASDAQ:AAPL) fell about 40% in just a few months. That’s the downside risk investors are facing in Netflix.

The funny thing, however, is that Apple Inc. (NASDAQ:AAPL) is now far more appealing. The stock yields around 2.8% and has a forward PE of around 12. It has to deal with saturated mature markets and less compelling new technology, but those risks appear priced in already. Moreover, it is paying shareholders well to wait for it to right the ship.

…must come down

Netflix, Inc. (NASDAQ:NFLX) shares are still being priced for perfection. The business model is good, but there’s still an important transition going on under the covers and within the streaming industry. If anything goes wrong, investors are likely to flee. AOL is facing a similar business shift, but is doing it from a much lower valuation level, which could make it a better alternative for some investors.

That said, Apple Inc. (NASDAQ:AAPL), which is a good option for growth and income types, shows that Netflix could again become a compelling investment — but only if its price falls notably from its perch.

The article This Company’s Virtuous Circle Can Only Grow so Far originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Apple and Netflix. The Motley Fool owns shares of Apple and Netflix. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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