Coinstar (CSTR) is having a tough day as the stock is down more than 5% today, mostly on the news that its CEO will retire and will be replaced by its CFO. I think the selloff creates a buying opportunity on this cheap growth play.
Recent positives for CSTR:
- An analyst at B Riley Caris came out today stating the company is a buy on weakness as CEO change should have no bearing on company's outlook or strategy.
- After falling for months, consensus earnings estimates have risen in the last month for FY2013's earnings estimates.
- Lost in yesterday's CEO departure announcement was that the company reiterated its fourth-quarter revenue and adjusted EBITDA outlook issued in October, and said lower expenses would help it achieve earnings at or above the high-end of its projected range.
Coinstar provides automated retail solutions. The company owns and operates self-service Redbox kiosks that enable consumers to rent or purchase movies and video games; and self-service coin-counting kiosks.
5 additional reasons CSTR is a good growth play at under $50 a share:
- The company should post revenue growth of 20% in FY2012 and analysts believe Coinstar will continue to grow sales by better than 10% in FY2013. The stock sports a five year projected PEG of less than 1 (.68).
- CSTR is selling at less than 9.5x forward earnings, a huge discount to its five year average (23.6).
- Analysts consistently underestimate the company's earnings power. The company has beat earnings estimates for six straight. The average beat over consensus over the past four quarters is north of 17%.
- The 11 analysts that cover the stock have a $64 a share median price target on the stock, around 30% above the current stock price.
- The stock is selling at the very bottom of its five year valuation range based on P/E, P/S and P/CF.
Disclosure: I am long CSTR.