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(Reuters) - Netflix Inc has been a stock market darling over the past few years and strong first-quarter subscriber additions sent its shares to another record high on Thursday. But is the company's sky-high valuation sustainable?
Some Wall Street analysts played devil's advocate, raising doubts about the sustainability of the video streaming service's scorching growth.
"I think if Netflix shares are valued based on its fundamentals, the share price is not warranted," Wedbush analyst Michael Pachter said.
Netflix's shares jumped as much as 20 percent to $568.75 - their highest ever. The stock, which has risen nine-fold in the last three years, was valued at 123 times forward earnings as of its Wednesday's close of $475.46.
In comparison, Apple Inc, the world's most valuable technology company, has a P/E ratio of 17, while Google Inc's stock trades at 26.7 times earnings.
Netflix's Wednesday closing implies a forward 5-year earnings growth of 35.1 percent.
According to StarMine's intrinsic valuation model, which takes analysts' estimates over five years and models a long-term growth trajectory, the stock should be trading at $77.09 with a 5-year profit growth of just 10.7 percent.
Still, at least 22 brokerages raised their price targets on the stock by $25-$500, with FBR Capital Markets analysts more than doubling theirs to $900.
U.S. subscribers love the Netflix service more than television itself, FBR analysts said, citing a survey of over 2,000 consumers.
A majority of the analysts who assigned high price targets valued Netflix based on its high subscriber adds, a potential rise in average revenue per user and a rebound in its core business of renting out DVDs and streaming movies.
Netflix has been wooing customers with original shows including the Emmy-winning "House of Cards" and new series such as "Unbreakable Kimmy Schmidt" and "Bloodline."
The company, which turned to international markets to make up for slowing growth in the United States, recently launched services in Australia and New Zealand and plans to be in Japan later this year.
The company expects to be present in 200 countries in the next two years, up from 50 now.
But the cost of driving subscriber growth has been high as Netflix continues to invest heavily but is yet to see any profits from outside the United States.
"When you are beating sub numbers by tripling the number of original hours, no one cares about any of the less sexy topics like international losses, content amortization policies or changes in working capital," MoffettNathanson Research analysts said.
Additional reporting by Arathy S Nair, Writing by Sayantani Ghosh; Editing by Joyjeet Das and Saumyadeb Chakrabarty