October 1, 2022
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RDBX stock explodes another 37%

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  • Redbox Entertainment stock exploded 106% last week.
  • RDBX stock was up 312% in the past month and 637% for the quarter.
  • RDBX is set to be acquired by Chicken Soup for the Soul (CSSE).

 

UPDATE: Redbox Entertainment shares traded up more than 37% on Monday as the WallStreetBets and meme stock crowded jostled to get a piece of the short squeeze candidate. The stock is thinly traded and heavily shorted, so it makes for an easy short squeeze target. $18 strike calls that expire this Friday are trading for $1.90, and 3,120 contracts at that strike price have traded on Monday morning. 45 minutes into the session shares have retracted to $16.45, about 24.3% higher than Friday’s close. Redbox is undoubtedly a horrible company. Revenue has been dropping for years (-33.8% YoY), and Chicken Soup for the Soul Entertainment (CSSE) has already agreed to buy it for $375 million. The important part is that only $50 million in CSSE stock is being given to Redbox shareholders. The remaining $325 million is Redbox’s debt that CSSE shareholders are assuming. That equates to 0.087 shares of CSSE stock for every share of RDBX. At CSSE’s current share price – $8.93 – RDBX shares are only worth $0.777. Besides the fact that Chicken Soup for the Soul acquiring Redbox is like if a person in bankruptcy used an inheritance check to invest in uncollectable debt at 50 cents on the dollar, this short squeeze is the most entertaining thing in the market at this moment. I cannot look away.

Redbox Entertainment (RDBX) stock continues to defy the laws of gravity and, for the most part, the laws of finance or economics as it continues to grab massive gains. This is despite the overall negative tone affecting markets, which are seeing most stocks and sectors suffer huge losses. Not Redbox though, as the stock soars to the top of the social media chart in the meme stock space on the back of a tried and trusted argument – a short squeeze. 

Redbox Entertainment stock news: Chicken squeeze for the soul

Redbox is like Blockbuster – doomed. Redbox offers those kiosks you see in your local store, the DVD vending machine kiosk. The ones you walk past and always wonder who uses those things. Just take out your phone, and you find a better selection. Who even has a DVD player in their house anymore? So that is what you are buying, a very old school company. Sometimes old school things go for a premium, like baseball cards and classic cars, but there is no such thing as a classic stock. They just wither and die and go bankrupt. Or get taken over as is the supposed case here.

Back in May Chicken Soup for the Soul (CSSE) came in to put Redbox out of its misery with a take-out deal that was not exactly well-received by CSSE shareholders. CSSE stock fell about 30% when the deal was announced. That was also after CSSE missed earnings. For the life of me, I cannot fathom why CSSE wants to buy Redbox, and Wedbush seemed to agree when it was pretty negative in a note to clients and put a $0.65 price target on RDBX stock. RDBX stock is currently trading at $15.70 in Monday’s premarket. 

Why the massive outperformance then? Well, short interest in RDBX has reportedly exceeded 100% last week. It is also a low float, low volume name, so was a perfect squeeze candidate. By the middle of last week, it was the top trending stock on social media, and the trick appears to have worked, judging by the massive share spike. However, it will not last, so please be advised to head for the exits and take your profits quickly. It was a good plan, well-executed, but time to let it go now. There may be another day or two given the massive 200%-plus short interest, but it will turn violently at that.

Redbox Entertainment stock forecast

There is not much to say here except that this will run out of steam fairly soon, and I am tempted to short it or buy some puts. This is not one for technical analysis. 

RDBX chart, daily


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