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By David Urani

Action in Coinstar (CSTR) this week seems weird because management guided its Q1 outlook way lower last week, but now it's coming back strongly. The stock sold off last Friday after beating EPS estimates by $0.17, but missed on revenues and guided Q1 earnings and revenue well below consensus (EPS of $0.77-$0.92 vs. $1.19 consensus). It seemed as if Netflix (NASDAQ:NFLX) was doing better in Q4 based on its recent quarter, which saw the stock surge upon reporting. CSTR's comps are slowing, with Redbox same-store sales having fallen 4% in Q4 2012, and they may continue to decline through the first half of the year. However, we do note that full-year guidance was in line with consensus.

The reason CSTR has been able to come back this week must be the valuation, as after a couple of disappointing quarters it's now at a discount 9.5 forward P/E and 0.6 PEG. On that note, though, EPS estimates have been coming down for the past few months and I'm not seeing a big growth driver, especially if NFLX is back in the game. We would also note growing competition in the industry from the likes of Amazon (NASDAQ:AMZN) and others, although CSTR does continue to take share in the physical DVD market.

Cheap valuation and a 44% short float could make this a squeeze candidate from time to time for traders on any bit of good news (just today it's making a push through $54.00 resistance on higher-than-average volume), but the fundamentals do seem to be deteriorating right now. So it's probably not a stock you want to hold for very long.

(click to enlarge)

Source: Stock Action: Coinstar