Coinstar's stock increased about 6% from a year ago and remains in a bullish trend. Coinstar's CEO Paul Davis announced revenue growth of 22%. While part of the perceived weakness looking forward is attributed to rental weakness, Coinstar and Redbox continue to mint mountains of coins.
At least most of the market cap losses appear to be baked in the cake at this point. Coinstar is currently valued with a price-to-earnings ratio of only 10.
Historically, stocks with a price-to-earnings ratio under 20 outperform stocks with multiples over 20. Does this mean you should not invest in growth companies sporting multiples above 20? No, however, it does mean when you consider an investment such as Coinstar, you should look for dips in the price as buying opportunities. Thursday's after-hours fall was more turbulence than a shifting sentiment in the company or management.Netflix's (NFLX) recent earnings release was met with tempered ingestion and price plunge. It appears reasonable then that Coinstar was facing a selloff with anything other than a strong beat on every metric. (Read my Surviving Netflix in an Apple and Amazon World article.) Based on my experience with gap downs following guidance similar to Coinstar's, investors will likely see the short-term low Monday or possibly Tuesday (sooner more likely than later). With Friday's opening gap down price of $51.20 and after hours trading reaching a low on Thursday near $48, more downside pressure probably won't last long. Bargain hunters and the few short sellers covering positions could push the price up over $55 by early next month. Looking at the chart, I expect short-term resistance near $54 and again at $55.60. Round numbers often attract like a price magnet and repel, causing a bounce. Expect a lot of volume to trade near $50 a share Friday and Monday, but also be prepared for bargain hunters to start positions under $49 as an entry.
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