Despite a pullback in Tuesday’s session, shares of American video rental company Redbox (RDBX) have put in a massive rally recently, and trading was even halted twice on Monday in what looked like a short squeeze. To wit, shares are up 260% over the past 10 trading days.
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Wait a minute, what year is this? Are people suddenly renting DVDs and Blu-ray Discs by the bucket load? Not really. The name appears to be the retail crowd’s new darling after the company secured a new line of financing recently and announced the CFO’s departure, a move which is normally perceived as bearish but evidently not in this case.
As for that physical rental business, what with streaming losing its luster recently amidst stagnant subscriber growth and Netflix’ share price meltdown, B. Riley analyst Eric Wold was also pleased with the announcement of the extra financing.
“Given our continued belief in the opportunity for the Redbox kiosk network to address the ongoing content needs of the target demographic (e.g., late technology adopters and price-sensitive consumers) — especially in an environment where SVOD platforms are beginning to hit a subscriber wall — we saw the value of additional financing to help RDBX get past the current content drought,” the 5-star analyst explained.
But the twist here is that Wold thinks the massive share price move could go toward expediting “digital growth strategies that have been put on hold or delayed as management sought out additional liquidity options.”
Given the shares’ run, via additional equity issuance, the company could further strengthen its balance sheet. This will help in not only lowering the debt balance but could also provide “an attractive path toward the diversification strategy.”
What does this entail? It involves leveraging the membership base as well as almost two decades of “rental pattern data and content preferences to further develop multiple digital options.” Ones that could appeal to almost every viewer demographic while dodging clashes with studio release plans, such as PVOD, FAST, and AVOD offerings.
Down to business, then, what does this all mean for investors? Wold rates Redbox shares a Buy, while his $10 price target suggests shares still have room to climb 35% higher over the coming months. (To watch Wold’s track record, click here)
Overall, the Street’s view on Redbox presents a strange conundrum. On the one hand, based on 3 Buys and 1 Hold, RDBX has a Strong Buy consensus rating. However, the average price target of $5.33 represents possible downside of ~28%. It will be interesting to see whether the analysts downgrade their ratings or upgrade price targets over the coming weeks. (See Redbox stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
