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Outerwall Inc. Message Board

  • mays199 mays199 Jan 27, 2013 1:55 PM Flag

    CSTR vs NFLX -- CALL OPTIONs heavy vol in CSTR

     

    Is it time to sell my calls in boths or just add some more? CSTR looks very ready for a major breakout ahead of the quarterly report.

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    • NFLX investors have had a run and now with the financial performance and huge PE multiple having run its course, it is appropriate to shift funds into a similar stock that hasn't run up so far, so fast, and where the earnings are actually stronger and the PE ratio is only 11. It is possible that some Netflix investors are moving into CSTR to take advantage of the opportunity here.

      In terms of how high the stock might move - if CSTR reaches a PE ratio of 15 and the annual earnings are lower than expected - let's say $4.55 - then a reasonable valuation for the stock is $68.25. That's how I view the valuation. Even if it takes the stock one year to reach $68.25, that would represent a 31% gain on an investment at the current level of $52. With the best investments paying one to three percent, a 31% gain would be nice.

      Even if the stock only moves halfway to the $68.25 target which would be about $60 that would represent a 15% gain which is also better than banks and bonds. This is how I calculate the potential for this stock and why I'm a long investor.

      Sentiment: Strong Buy

 
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