A new article on Sumzero (an invitation only website for the smartest minds in the hedge fund business) lays out the case for why CSTR is worth $15 at best. Essentially says the company has low quality earnings and consistently negative free cash flow. Looks like professional money managers are heeding this and getting out of the stock. If I were a retail investor, I would get out now before the stampede starts.
The stampede has been on since the stock was 35 bucks a share. I'm just waiting for the insanity to stop before I buy the stock. Obviously, whoever decides to turn on the switch to make the stock price drop hasn't changed their mind yet. I think its a great company.
I'm confused about what low quality earnings are. Can you define that? I'm not being an ass, I'm serious. Seems to me to be a misnomer.
To me this stock is about depression proof. I think the coin collection machines are kind of dumb but Redbox is pure genius.
If they are having negative cash flow issues that would be a surprise but may be due to investment in new machines which isn't really a problem. They are an expanding company. I'm not an expert on the movie vending market.
Some serious comments would be appreciated. Estimates on price are ridiculous since no one really knows or they would bet the farm on it.
The chart for this stock looks terrible from a technical side but I think it will eventually reverse. I'm just keeping an eye for the plunge to stop.
Low quality earnings = when the company pro-forma's out a bunch of items when reporting numbers or stretches to post its numbers, usually evidenced by a divergence between free cash flow and net income. You want free cash flow (cash flow from operations less capital expenditure) to be close to net income. In CSTR's case, over the last 12 months, free cash flow has actually been negative. Part of this can be explained by heavy investment in Redbox machines (which may never pay off in the long run), but the company's free cash flow was negative for all of 2007 too, when Redbox was not in the picture. Free cash flow was terrible last quarter and down substantially YoY, so they may miss their numbers this quarter. Also, the company regularly writes off assets, but pro-forma's it out.