TheStreet TV's Jack Mohr said a majority of the company's business comes from its Coinstar and Redbox; Redbox alone accounts for 80% of Outerwall's revenue. But many investors consider movie rentals as a thing of the past and often compare Outerwall's business to Blockbuster, the video store chain that eventually collapsed.
However, Blockbuster had a pricey bricks-and-mortar operation that make it very difficult to compete against on-demand movie offerings from the cable companies, he said.
That's where Outerwall is different. First, it doesn't have expensive bricks-and-mortar locations. It simply needs a kiosk to do business. Second, the prices for Redbox's rentals are much cheaper than on demand offerings, giving it a strong competitive edge.
While the company's prospects look much brighter than its doubters care to admit, its financial situation is even more attractive, Mohr said. The company recently hiked its prices by 25%. But because its movies are mostly an impulse purchase, it's likely to have little pushback from consumers, just like in 2011, the time of its last price increase.
Furthermore, the company plans to use its large cash generation to create additional value for shareholders. In 2015, Outerwall is expected to buyback 20% of its outstanding shares.
At just nine times next year earnings, it's the "perfect time to snap up this compelling value investment opportunity," Mohr concluded.
-- Written by Bret Kenwell