Investment Analysis and Stock Valuation on REDBOX company Term Paper

Investment Analysis and Stock Valuation on REDBOX company - Term Paper Example They are situated across the United States at various grocery stores, supermarkets, discount stores, pharmacies, fast food restaurants such as McDonald’s etc. The company wants to bolster its way into the hearts and minds of movie and game renters. As mentioned previously, Redbox is a futurist and so the fast-growing firm, which brags around 33,000 kiosk nationwide, plans to proffer web or internet streaming by the end of 2011 and also feels that it can double the current number of rental outlets considering its bullish trend and prospective growth opportunities (Brad Tuttle, 2011). II. Stream of Expected Returns (Cash Flows) a. Form of returns: Due to non-availability of Redbox’s financial statements, its parent company, Coinstar Inc.’s financial data is being considered. Examining the years ended December 31, 2008, 2009 and 2010, the cash flows from operating activities reduced by 35.42% to $123.89 million in 2009 and escalated by a massive 154.76% mainly due t o increase in liabilities. The cash flows from investing activities were negative in all three years analyzed; however, there was an increase of $37.13 million and $5.02 million in 2009 and 2010. Due to heavy repayment of borrowings and purchase of stock in 2010, the financing activities came about again as a negative figure (-$122.046 million) after a meager one in 2008 (-$602,000). b. Time pattern and growth rate of returns: As mentioned in the previous part, a yearly time pattern has been considered. The growth rate of return is known as the Sustainable Growth Rate and is computed as follows: g = RR (Retention Ratio) * ROE (Return on Equity). As there are no dividend streams being paid by the company, RR will be equal to 100% and as ROE = 22.47% (according to Yahoo Finance, Coinstar Inc.... Form of returns: Due to non-availability of Redbox’s financial statements, its parent company, Coinstar Inc.’s financial data is being considered. Examining the years ended December 31, 2008, 2009 and 2010, the cash flows from operating activities reduced by 35.42% to $123.89 million in 2009 and escalated by a massive 154.76% mainly due to increase in liabilities. The cash flows from investing activities were negative in all three years analyzed; however, there was an increase of $37.13 million and $5.02 million in 2009 and 2010. Due to heavy repayment of borrowings and purchase of stock in 2010, the financing activities came about again as a negative figure (-$122.046 million) after a meager one in 2008 (-$602,000).b. Time pattern and growth rate of returns: As mentioned in the previous part, a yearly time pattern has been considered. The growth rate of return is known as the Sustainable Growth Rate and is computed as follows: g = RR (Retention Ratio) * ROE (Return on Equity). As there are no dividend streams being paid by the company, RR will be equal to 100% and as ROE = 22.47% (according to Yahoo Finance, Coinstar Inc. Key Financials as of December 31, 2010), the growth rate will also come about to be 22.47%.III. Investment Decision Process: A comparison of Estimated Values and Market PricesTo consider investment decisions in a particular stock, its estimated or fair value and market price comparison should be carried out. This will tell investors whether the stock is undervalued or overvalued.