The hottest stock in the market is a name you may know, but a winner you probably didn’t expect. Shares of Redbox Entertainment (RDBX -18.17%) have more than quadrupled in the past two weeks. Yes, that Red box.
It’s fair to say that the upsides haven’t exactly been earned by the company which seems to have lost relevance over the years. The company behind the vending machines outside of some retailers that spit out movie discs and video games has had its share of problems over the years. Do you still have a DVD or Blu-ray player?
However, the surge in the stock following an explosion in trading volume finds market speculators linking the meteoric rise to the surge we saw in AMC Entertainment Holdings (AMC -2.29%) and other meme stocks last year. Despite media distribution models that have largely faded over the past two decades – DVD sales peaked in 2005 and the multiplex record for most tickets sold was set in 2002 – hope is eternal when Online masses are rallying around the retro charm. Redbox is back, but the sustainability of its gains may prove fragile.
Redbox came to market in October as a special purpose acquisition company, SPAC. It rose 24% to close at $11.90 on the first day of trading, but everything went downhill after that. The stock was trading below $2 when the surprising rally began two weeks ago.
You won’t find traditional bullish catalysts behind the stock’s bottled flight to the stars. On the contrary, it is negative developments that have dominated the headlines over the past two weeks. canaccord Analyst Austin Moldow cut the stock price target from $16 to $3 days into the rally. Moldow pointed out that Redbox recently reduced its workforce by 150 employees and tapped its revolving line of credit. The financial results fell short of the company’s already reduced expectations.
Last week, it was the financial director who left the company. Redbox has announced that Kavita Suthar will be leaving the company on May 16 to spend more time with her family.
Redbox knows the shortcomings of its business model. He knows his roughly 40,000 kiosks aren’t getting the same type of business as they did two decades ago. The demise of Blockbuster and other human rental retail concepts was more of an omen than an opportunity. Redbox has expanded its retail presence to include streaming content, and it has tried to follow better-funded players in acquiring content. It’s the right approach, but it’s a crowded market. Three months ago, the stock lost almost half its value in a single day after warning that its business was in trouble.
Can being the latest meme stock help breathe new life into a broken business model? B.Riley Analyst Eric Wold posted an upbeat note on Redbox this week. Wold sees Redbox following the AMC plan laid out last year, raising capital to shore up its balance sheet with its inventory surge. Profitability may not be on the horizon anytime soon, but leveraging its fiery stock could provide it with the financial wherewithal to clear its debt balance while also providing the funds needed to execute its strategy. of diversification. The analyst is sticking to a Buy rating and the prior target of $10 on the stock.
A lot is possible now that trading volume and the stock itself are on the rise, but you probably know how these meme stories often play out. The higher they go, the lower they fall as we run out of twists and the end credits start rolling.