November 2, 2011
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||Coinstar (Nasdaq: CSTR )
|Stock Price At Recommendation:
||Amazon.com (Nasdaq: AMZN )
NCR (NYSE: NCR )
Apple (Nasdaq: AAPL )
Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.
This week's pitch:
Some investors believe that Coinstar, Inc will reap the rewards of Netflix (Nasdaq: NFLX ) misfortune on the short term rentals. I previously noted that those Redbox dispensers are really popping up everywhere. Overall however, the DVD kiosk rentals is a limited business. Streaming and selection via other means will catch back up.
I believe Coinstar investors have put too high of a premium on the share price since Netflix's fall from grace. In this sentiment/environment share holders who are asking too much are the quickest to run when the company can't quite deliver what they want. Profit margins have been tight at sub 5%. P/B is 3.5. P/E "around" 20.
I don't think Coinstar is a bad business, and may have potential at the high $30's. It hit $40 four times in the last three months prior to the Netflix over upside correction.
Update after earnings: Coinstar "pulled a Netflix" with the announcement that it will raise rentals by $0.20. Not much in the scheme of life, maybe a $1 a week for a moderate user, but it's still 20% and the principle of the raise. It does demonstrate, however, that the content costs are rising and margins, despite the price increase will remain tight. Hard to say if they will lose/gain/net revenue on the price raise, I expect gain revenue slightly, but not [to] the level they need to [support] the current share price. The 11 Million shares short got away with this one this quarter and I think are safe. Growth for the quarter was weak.
Target for CAPS: Sub $44.
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