Insights

Why Redbox Entertainment Rallied 23% at the Open Today

What happened

Shares of Redbox (NASDAQ: RDBX), a physical and digital content rental service, gained as much as 23% in the first few minutes of trading on Monday. As of 12:30 p.m. ET, the stock was still up by 17.4%. This type of drama, however, is hardly unusual for Redbox, which appears to have gotten caught up in the meme stock craze.

So what

If you’ve been paying attention to Wall Street for more than a couple of years, you know that when investors’ emotions start to dominate the action around a particular stock, it can lead to unusual outcomes, at least over short periods of time. Over the longer term, the hard facts normally win out. That’s what makes the case of Redbox so interesting. The company has agreed to be acquired by Chicken Soup for the Soul (NASDAQ: CSSE). If all goes as planned, Redbox shareholders will receive 0.087 shares of Chicken Soup for the Soul for every share of Redbox they own.

Chicken Soup for the Soul was trading at $9.44 per share as of 12:30 p.m. ET Monday, valuing its offer for Redbox at a whopping $0.82 per share. Yet Redbox stock is changing hands at more than $5 per share, with Monday’s gain alone nearly as large as the full buyout bid. This is not logical, and it won’t be unless a better offer comes along. But so far, no such bid appears to be in the works, and betting that one will materialize carries serious levels of downside risk should the current deal go through.

Now what

Earlier Monday, Redbox’s name found its way onto a list of top short squeeze candidates for August. That may have been a cause of Monday’s early advance, but it doesn’t change the big picture here. Redbox is trading well above the takeover offer it has received even though there’s no particular reason to believe that the deal will be altered in any way. At this point, buying Redbox is little more than a gamble, and most investors should probably avoid it. There are just too many great companies on sale in this bear market to bother with a situation as risky as this.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info