Coinstar’s Stock Leap: A Lot of Short-Covering, Little Actual Enthusiasm for Netflix Fight?

Coinstar (CSTR) shares surged Tuesday after it announced it signed a video-streaming deal with wireless carrier Verizon (VZ) that will augment its Redbox DVD rental business and enable it to join the leading edge of video distribution.

Coinstar Stock Chart by YCharts

But be aware: one of the factors behind Coinstar’s spurt - the stock rose almost 14% on volume that was 16 times its daily average - could be some covering in the huge short position in the stock.

The most recent data from mid-January shows 12.5 million Coinstar shares sold short. Its larger rival Netflix (NFLX), whose shares slumped somewhat Tuesday with the prospects of another streaming competitor, has more or less the same number of outstanding shorts.

The difference, however, is that Coinstar has a short-interest ratio of around 14 while heavily-traded Neflix's ratio was only about 1. That means it would take 14 days to cover, on average trading volume, all of Coinstar's short position compared to only 1 day for Netflix.

Netflix PE Ratio Chart by YCharts

That same short position could be partly responsible for keeping a lid on Coinstar's valuation over the past several months.

It could also be that Netlix has been winning investors’ hearts of late -- after suffering through a pounding last year amid some lousy business decisions, it bounced back in the fourth quarter by announcing a big jump in subscribers.

Michael McHugh is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.