Coinstar - Its Rebound Won't Go Far

Coinstar (NASDAQ: CSTR) disappointed a lot of investors when it lowered its guidance on Jan 13 after market closed, and its stock plunged 25% right after, and thus a coinstar moment was born. As if that's not enough, it further revised and lowered guidance again when it reported earnings on Feb 3, and its stock dropped 10% afterwards.

CSTR Chart

Nonetheless, the stock has rebounded from its recent low of $38/share to ~$44/share, right around its stock price prior to the drop on the second time it revised guidance again. While bulls may contend that the stock was rising because there's substantial value and growth for the company, we believe this is due more to short covering, and it will soon peter out.

How much farther can Coinstar go down in this case? Let's take a look at some of the recent high flyers that got punished. One of them is F5 Networks, Inc. (NASDAQ: FFIV), and it had a great rebound since it dropped substantially after guidance disappointment. However, Coinstar is no F5 Networks. First, F5 Network's only has a slight disappointment on revenue. Second, F5 Network's did not begin its rebound until ACME Packet (NASDAQ: APKT) reported record earnings on Feb 1. The rebound was therefore more a resurgence of enthusiasm in the industry sector than enthusiasm in FFIV itself.

FFIV Chart

BBY Chart

NKE Chart

To project the trajectory path of Coinstar, we believe it's better to look at Nike's (NYSE: NKE) and BestBuy's (NYSE: BBY) stock actions. In both cases, the stocks rebounded to levels after the initial drops, but then started fading again. This is likely the course that Coinstar's stock price will take, and we believe Coinstar is a short candidate right now, and will likely drop back to $38/share again, if not more. In the case the market starts to correct, Coinstar, even after all the recent drop, will not be able to escape the wrath, and will likely drop even further than the $38/share level.

Daniel Ho is the founder of 10xreturn.com, a financial portal providing financial information and market statistics for investment professionals.