Wall Street Journal Cautious On Coinstar (CSTR)

The Wall Street Journal's Heard On The Street column published a gloomy outlook for Coinstar (Nasdaq: CSTR). In 2009, Coinstar has already risen an explosive 57% to $32.77 and the Journal said CSTR is trading at a premium valuation relative to a competitor like Netflix (Nasdaq: NFLX). Coinstar is trading at a multiple of 44 times estimated 2009 earnings compared to Netflix trading at 27 times.

Coinstar offers vending machine services, such coin counting machines and dvd rentals. Coinstar's Redbox vending machine offers $1 dvd rentals and Redbox sales rose over 50% last year. Coinstar recoups some of its costs by selling the used dvds, but the heard on the street column, cautions readers with used dvd prices falling, that could have a negative effect on Coinstar. Also, another risk for CSTR is Blockbuster (NYSE: BBI) plans to roll out DVD vending machines. Lastly, Coinstar's Redbox is in litigation with Universal Films, which raises questions as to will Redbox be able to maintain a large supply of dvds at competitive prices.

The column concluded by saying, "at current valuations, investors should pause before putting cash into Coinstar."

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