Coinstar (CSTR)

We’ve previously profiled this stock and missed a superb trade in it. We do not like the way it has set up but it might shortly present entry. Given the fundamental outlook for the company we will buy it should the proper conditions present themselves.

What don’t we like? The stock’s Relative Strength is a laughable 55. And the line itself is sinking. Also, while there actually seems to be more accumulation than distribution in the base we can’t say we’re in love with the volume profile. Finally, it’s at least a few days away from the full seven weeks you’d like to see a pattern like this encompass.

But we’ve spoken about how CSTR has delivered on their estimates. And they have forward projections over the next two quarters that would score year over year EPS gains of 56% and 100% on year over year sales gains over 35%. And now this morning an analyst has published even higher estimates for the balance of this year and next. That could well serve as an immediate catalyst for the stock.

And we like how no one is following this stock. It barely gets any notice. The sector favorite seems to be Netflix (NFLX), which has decelerating earnings and sales.

CSTR’s pattern is a double bottom. The earliest buy point we would consider would be on O’Neil’s “Shake Out Plus Three” rule that states to buy a stock emerging from this kind of a base if it passes on volume about $3 higher than the first leg of the base. That would be about $33.20. As the stock trades about 840,000 shares a day we’d like to see daily volume at no less than 1.2MM shares on this move. A secondary buy point would be the more traditional break over the mid-point of the W pattern at $34.80.

As always we’d look to employ a 5% stop.