Exclusive Interview: Why This Hedge Fund Manager Is Short Netflix

Rev. Emmanuel Lemelson was recently a guest on #PreMarket Prep, a daily trading idea radio show hosted by Joel Elconin and Dennis Dick. Tune in to the daily broadcast live Monday-Friday at 8 a.m. ET here.

Among other issues, Lemelson Capital Management Chief Investment Officer Rev. Emmanuel Lemelson discussed the tech sector. The expert told Benzinga that he believes the sector as a whole looks a little overvalued, since it’s been a bull market for the last five or six years.

He highlighted, however, that not all companies in the sector are overvalued, although there are situations where valuation seems quite high. This is the case for Netflix, Inc. NFLX, for example.

The Netflix Short Stake

Talking with Benzinga, Lemelson disclosed he recently acquired a short position in Netflix on Thursday, a day after the earnings report, as he considers the multiple “outrageous.” And, although he believes the multiple could be maintained, as in Amazon.com, Inc. AMZN’s case, he notes this would not be as easy for the former, since Amazon is more diversified than Netflix.

The CIO notes that “a lot of things drove the market up in the last five or six years, with low interest rates being chief among them.” However, he sees these factors tapering off now: “obviously, interest rates are going to go up,” and buybacks are going down. So, it will be increasingly difficult for companies like Netflix to maintain their valuations at current levels.

Lemelson confesses he does not like shorting, but would still be short most of the overvalued tech names.

“When you look at a company like Netflix, [with] brilliant leadership, brilliant vision, really small earnings, huge market cap…,” and compare it with Apple Inc. AAPL, which is really pushing into the streaming segment, “it is not clear at all that there’s a defendable moat” at Netflix, Lemelson assures, although he acknowledges this might not be a popular opinion.

The expert adds, “often times, they do not look like bubbles until it’s too late.” This is why he feels comfortably about shorting Netflix, and several other highly-valued, very popular companies in the tech sector.