This column is for investors willing to take more risk and potentially receive more reward.  The stocks mentioned in this column are not recommended to buy or sell.  They're brought to your attention so you can investigate them further to determine if they fit your risk profile.  Most of the stocks will have less than $1 billion of market capitalization, have more volatility than other stocks, and oftentimes no earnings.  And some will have tremendous stories.

June 18, 2010 - Coinstar, Inc. (CSTR-NASDAQ) provides automated retail solutions primarily in the United States, Canada, Puerto Rico, the United Kingdom, Mexico, and Ireland. It owns and operates self-service coin-counting machines, which enable consumers to convert their coins to cash, a gift card, or certificate; and installs and operates DVD kiosks, which enable costumers to rent or purchase movies. The company also has money transfer services.

Here's the scoop: earnings are going from 78 cents last year to $1.83 this year, if the 11 analysts following the stock are correct in their forecasting. Next year, look for $2.76. If these numbers hold, the stock should perform very well over the next 2 years, at a minimum. Since March, the stock is up over 70%.

First quarter results reflect the reason for the analysts' enthusiasm. They had predicted 13 cents a share. The company delivered 21 cents, 61.50% ahead of estimates. For the second quarter, analysts see 34 cents (due out in July), well ahead of the 23 cents of last year's second period. For the third, they see 61 cents, almost double the 31 cents of last year's third.

The future looks bright for this part of the business. The company recently signed a movie distribution deal with 2 large film studios: Universal Studios Home Entertainment and Twentieth Century Fox. The new agreement is multiyear and stipulates Coinstar will pay Universal $83 million and Fox $395 million. In return, Redbox will have new releases in their kiosks 28 days after a film is released. One of the benefits of the new deal is that CSTR will now have DVD's delivered from the studios. That will help in 3 ways: they'll be cheaper and easier to get than the current method of obtaining discs which is to go to Wal-Mart or Target and other stores to buy them. The second is that it increases profitability. There's a third benefit: it enables faster expansion of Redbox since the supply of discs is no longer a limiting factor.

More numbers: Trailing P/E is 27.57 while Forward P/E is 19. Price to sales ratio is 1.33. Price to book is 3.94. Book value is $13.32. Operating margin for the last 12 months was 8.61% while Profit margin was 4.63%. Return on equity was 7.76% and Return on assets was 5.71%. Total revenues for the last year were $1.26 billion. There's $100.42 million in cash for $3.17 a share. Total debt is $467.49 million or 51% of capital. In the last 52 weeks, the stock is up 96.74%. There are 31.72 million shares outstanding with a Float of 31.39 million. Insiders own 1.04%. Institutions have 120.50% of the Float. There is no dividend.

There's a lot of good here. Investors sense that. They've bid up the stock rapidly in the last year. Valuations are getting high, based on past numbers. But if future results are as good as analysts expect, valuations don't seem out of line for such a strong growth company. One major concern is the digital revolution. Watching movies downloaded to a television is more and more common. That makes renting seem obsolete. But very few households currently have that capability. It's much easier for many shoppers at the local grocery store to put in a dollar and grab a movie, then return it a day or two later when they have to shop again. That trend should continue for some time. Aggressive investors will want to find out if there's more room to run for this stock by digging deeper.

- Company Web site: www.coinstar.com

- Ted Allrich