Please ensure Javascript is enabled for purposes of website accessibility

Why Outerwall, Inc. Gained 12% in April

By Anders Bylund – May 5, 2016 at 12:14PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Redbox parent soared as management handed the reins to activist investors. What's next?

You say these things were hot a decade ago? Cool.

What: Shares of Outerwall (OUTR) rose 11.7% in April 2016, according to data from S&P Global Market Intelligence. That was a big win against the S&P 500 market barometer, which gained only 0.3% over the same period.

So what: The company reported earnings at the very end of April, but that wasn't the big rocket booster behind this month-long gain. On April 12, the provider of Redbox movie rental kiosks and other convenience-shopping services announced that activist investor company Engaged Capital would gain three board seats by the end of the summer.

Thus equipped, Outerwall would then go on to explore "strategic and financial alternatives." That's commonly a euphemism for "finding buyout exit options," which tends to be a lucrative event for shareholders.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

Now what: The buyout potential that was sparked by Engaged Capital's expanded influence sits on top of a March announcement, where Outerwall's management said it would consider its options. That statement was also fueled by Engaged's influence.

Among the suggestions presented by Engaged Capital so far, Outerwall could go looking for a private equity buyer or boost its dividend to astronomical levels. Both of these options amount to giving up on Outerwalls' core business. In particular, the dividend play is not far removed from liquidating the company and doling out the resulting cash to shareholders. Given that Outerwall shows a negative book value today, that might not be a bad idea. Any spare cash found between these couch cushions amounts to a windfall.

On that note, Outerwall's share price has plunged 42% lower over the past 52 weeks in spite of the seemingly drastic April surge. Call it a "dead cat bounce" and move on. There's not much life left in Outerwall's outdated business model.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Outerwall Inc. Stock Quote
Outerwall Inc.
OUTR

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
338%
 
S&P 500 Returns
108%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/07/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.