Is Coinstar, Inc. (CSTR) Still a Buy?

Risks for Coinstar
The most obvious risk is the fact the DVD rental market is in decline. But there is no indication of how long it will take for streaming services to fully take over. Sales for DVD rentals declined 11% in 2011, which is not good since 75% of Coinstar’s revenue comes from Redbox. Also, Netflix, Inc. (NASDAQ: NFLX) has a solid hold on the streaming service. Redbox Instant will have a large hurdle to climb with Netflix’s 60,000 title selection. Netflix already has over 25 million users, so Redbox will have to bring something to the table that Netflix does not provide already. Coinstar’s management has also been in hot water before. In 2011 investors filed a lawsuit against Coinstar for not releasing information about Redbox. The COO, the president, and the founder of Redbox, Gregg Kaplan, are all also stepping down in 2013.

My Conclusion
At a P/E of around 10 Coinstar is fairly priced right now. They are the leading man in the DVD rental business and they look to keep expanding their control of the market, even though the market is in decline. This makes Coinstar a good buy for at least for a few more years as they dominate DVD rentals. But looking ahead Coinstar might be a good play if they are able to make their streaming service profitable and continue to expand their business models.

The article Is Coinstar Still a Buy? originally appeared on Fool.com and is written by Howard Cranford.