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3 Reasons to Avoid Outerwall Stock

Outerwall (NASDAQ: OUTR  ) shares are on fire lately, up more than 20% since an activist investor unveiled plans to push management for a sale or other potential strategic changes at the company. However, Fool contributor Demitrios Kalogeropoulos isn't buying right now.

In the video below, Demitrios gives three reasons to avoid Outerwall stock. First, weakness in the Redbox DVD rental business adds a lot of uncertainty around the company's main cash cow. Second, Netflix (NASDAQ: NFLX  ) isn't shedding DVD subscribers at nearly the pace it was last year, removing a big tailwind from Outerwall's business. And third, it's hard to see where growth will come from over the longer term as the overall DVD rental market continues to shrink. 

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 10, 2013, at 6:16 AM, AndreWilliamson wrote:

    Bash OUTR, plug NFLX. Bash OUTR, plug NFLX. Rinse and repeat.

    OUTR at $60 can go either way. At a P/E of 12, it isn't exactly the valuation train wreck that NFLX is. NFLX's trailing P/E is 360?

    There is still a big chunk of the market that won't have the money or the broadband - NFLX subs in the US will asymptote a lot sooner than bulls think, imo.

    And who's going to supply current movies to the public? NFLX doesn't.

    The economics of Redbox works for the poorer half of the country: cheap price, and OUTR need spend only once for each disc, then it can rent it out as many times as it can.

    NFLX on the other hand has to pay for every stream.

    Yes, the world is moving to digital, but the "OUTR is dying fast" scenario ignores both income distribution, infrastructure limitations, and valuation, none of which are favorable to NFLX.

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Related Tickers

12/31/1969 7:00 PM
OUTR $0.00 Down +0.00 +0.00%
Outerwall CAPS Rating: **
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Netflix CAPS Rating: ***