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Cramer: The Netflix-Disney comparison reminds me of a famous Babe Ruth quote

CNBC logo CNBC 5/24/2018 Elizabeth Gurdus
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All day on Thursday, CNBC's Jim Cramer heard market-watchers buzz about the stock of Netflix surpassing the stock of the Walt Disney Company in market capitalization.

Netflix, the online streaming giant behind popular titles such as Stranger Things with the best-performing stock in the S&P 500 so far this year, reached a market value of $152.6 billion on Thursday, according to FactSet.

Shares of Disney, the ubiquitous entertainment company with successful franchises like Star Wars and Marvel's Avengers, fell about 1 percent, pushing Disney's market value to $151.8 billion.

But to Cramer, comparing the two entertainment plays was not particularly useful.

"To me, this comparison is as fatuous as one drawn by a reporter who famously asked Babe Ruth back in 1930, how it is possible that he made $80,000 a year when President Herbert Hoover was paid just $75,000?" the "Mad Money" host said.

"His response: 'What's Hoover got to do with it? Besides, I had a better year than he did,'" Cramer said of the baseball legend.

Read more from Jim Cramer and other top money experts

While Netflix and Disney are obviously both entertainment companies, Cramer argued that Wall Street views them very differently.

Analysts and investors see Disney as a more traditional entertainment company with legacy segments and some new technological prospects. But they pine over the high-growth juggernaut that is Netflix, Cramer said.

"It's not in the media category, it's something totally different," he said, comparing Netflix's stock with Amazon's because of the way Wall Street values it: exclusively on future prospects.

"If the growth runs out or slows down, believe me, that valuation will be crushed far, far more heavily than Disney['s stock] could ever go down," Cramer warned.

"In reality, the opposite is occurring, though. Netflix is expanding ever faster into new markets," he said. "If you run a fund that only like the highest growth stocks, you think it deserves a higher capitalization than Disney because it grows much faster. That's how they think."

And when it comes to skeptical analysts who argue that Netflix's stock is too expensive, Cramer attributed their "mis-valuation" to not understanding why Netflix is in a different, growth-centered sector.

"I say don't be so quick to question a high-quality stock when management's great, like the management of FAANG, for example," he said, referencing his acronym for the stocks of Facebook, Apple, Amazon, Netflix and Google, now Alphabet. "It just might be right."

But the "Mad Money" host suggested that when it comes to short-term gyrations like Thursday's up-and-down trading session, investors use them to find bargains, not get swept up in the panic.

"This short-term stuff [is] so wrong so often that it's a wonder we even bother paying attention to it other than to point out instant anomalies that, hopefully, you can jump on to get some good entry points," Cramer said.

Disclosure: Cramer's charitable trust owns shares of Amazon, Facebook, Apple and Alphabet.

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