Oct 25, 2013 · 3 minutes

No, we're not close to being in another bubble in tech stocks, but from the perspective of fundamental analysis there are signs that things are getting silly. It's not just Twitter heading for the public markets with an 11-digit valuation and nary a whiff of black ink. Or that the fuzzy math being used to justify high valuations reminds some seasoned veterans of crazier times.

There is also Netflix, a company that has not only emerged as a bellwether of the comsumer Web but has a long history of volatile share prices and ethereal valuations. Even by its historical standards, however, Netflix's stock performance is beginning to get a little weird.

How weird? The company's CEO went out of his way to say he's worried about his company's stock price. Most of the time when a CEO says that, it's because the stock is languishing. But in a quarterly letter to shareholders last week, Reed Hastings said, “Some of the euphoria today feels like 2003.” Then, in a conference call with analysts, he added, “we have a sense of momentum investors driving the stock price more than we might normally.”

What worries Hastings is a development that he's seen before – Netflix becoming the biggest gainer in the S&P 500. That's the case this year as it was 10 years ago. In the 18 months between October 2002 and April 2004, Netflix's stock rose more than 1000 percent while the S&P 500 rose 42 percent. What followed wasn't so fun: The stock lost three quarters of its value over the next six months.

Since August 2012, Netflix's stock has risen 524 percent, giving it a price-to-2013-earnings ratio of 190. So Hastings' comment on investor momentum was a polite way of suggesting some investors aren't thinking rationally. And if that wasn't clear enough, the next day Carl Icahn said he had cut his stake in Netflix from 10 percent to 4.5 percent.

In the pink sheets and in emerging economies, stock speculators usually target companies with little revenue but innovative business models that promise future growth. But the thing with Netflix and others like Amazon that are beloved by US speculators is that they have shown they can deliver regular profits (although Amazon is currently losing money), growing operations and a strong foothold in their markets. The basic logic – that these companies are investing profits into years of future growth – is a sound one, but it can only justify a stock rallying so far.

Netflix's core business has a promising future. Last year, when the company's operating cash flow turned negative, the company was making a bold bet on original programming. Back then, I wrote (wrongly) this bet might not work out well, but it has. New subscribers are finding it an attractive alternative or supplement to cable subscription channels like HBO. Netflix now has more subscribers than HBO by offering lower fees and by making its shows easier to watch online.

In a press release, Icahn explained why he sold millions of shares despite Netflix's promising future. “As a hardened veteran of seven bear markets I have learned that when you are lucky and/or smart enough to have made a total return of 457 percent in only 14 months it is time to take some of the chips off the table.”

In this market, not everyone shares that perspective. On the day after it reported earnings, Netflix shot up 10 percent before sinking 17 percent from that fleeting intraday high. At first, no one could figure out why, until it was clear that Icahn was unloading the bulk of shares he wanted to sell. This led to the irony of analysts justifying higher price targets even as the stock was tanking.

To be fair, analysts have a tough task whenever investor momentum overtakes a stock. They're caught between the cold logic of mathematics and the fevered dream of speculation, and this can lead to a lot of equivocation. Many of them have been expressing concern over Netflix's valuation, and yet it never looks good to stand in the way of a stock charging higher.

Netflix is now trading around where it was the day before it reported earnings. It's like this whole absurd episode never happened, and many investors are still happy to buy the stock at this level. But when a company's CEO and a major shareholder are telling you that this stock is getting too expensive, maybe it's worth taking a second and considering whether they have a point. Even in this market.