Has Cable Killed the Video Store?

One of the smallest industry groups is the video store industry. Not only is it hard to find video store companies, of the ones that are out there, it's hard to find any that have market caps above $100 million. With the growth of video on demand through cable companies and the easy of video downloads on computers, seems to have had an impact on retail video outlets. Is it possible that there may be a stock that has developed a niche in this area and become a survivor?

If you just look at the stock prices of the two largest, Netflix, Inc. (NFLX) and Blockbuster Inc. (BBI), its stocks are down over where it was a year ago. Let's take a closer look.

Netflix offers movie rental subscription services exclusively online and has over 6 million subscribers. The stock has a P/E of 28 and a PEG of 1.2. Its latest year over year quarterly earnings growth was up 124% on a revenue growth increase of over 36%. Its balance sheet is in decent shape with over $380 million in the bank, and it has no long term debt.

Blockbuster has attempted to combine the retail rental of videos, video games, and DVDs both online and in its stores. It recently reported its financials which stated that its first-quarter loss widened despite the fact that its revenues went up by 5%. And, although it has almost $400 million in cash, it is almost $1 billion in debt. This is one of those strange high institutional holding stocks that I had talked about in a previous article, with 129% of the shares owned by institutional and mutual fund owners.

Trans World Entertainment Corporation (TWMC) sells videos, video games, and music through mall-based retail entertainment stores and five online websites. It has a trailing P/E is 14.4, a forward P/E of 58.5 and its PEG is a high 5.9. The company just reported that its chairman and CEO, who also receives rental income from the company for property and aircraft that he owns, was paid $2.8 million last year.

Movie Gallery Inc. (MOVI) is an Alabama based company which is a retailer and renter of DVDs and videos. It has a forward P/E of 12.2, over a billion dollars in debt, and less than $33 million in cash. Its book value is a negative $7.43 per share.

BBI vs NFLX vs MOVI vs TWMC 1-yr chart

Disclosure: The author does not own any of the above.