For a company built on an outgoing medium, Coinstar  (NAS: CSTR) presents a conundrum for investors. Can it transition its cash cow of DVD rentals into a new streaming business? Will new ventures help it survive long into the future?

To help answer these questions, we've put together a new premium report on Coinstar to figure out if it's a buy, sell, or hold. For a sample of what's in the analysis, below is a free preview.

The opportunity
Coinstar enjoys the brilliant economics of its automated business. It runs roughly 40,000 Redbox kiosks and 20,000 coin kiosks with only 3,000 employees. That makes about 60,000 points of sale with customers, even though there are 20 machines per employee. That's an efficiently run business.


For turning coins into cash, the company takes $0.098 for every dollar in the U.S. and $0.119 per dollar in Canada. Customers can opt to get a gift card to certain businesses without the fee, but the company still earns an operating margin of about 24% for the coin machines, including depreciation. Even though the brand may not be luxurious, its technology and convenience allow it to earn luxurious margins. However, the coin segment makes up only 25% of operating profits.

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The rest of profits come from the disc rental segment. At a Redbox, a customer usually pays between $1 and $2 plus tax per day. Operating margins here are lower, a little above 13%, but still in the double digits. Overall for the company, because of investing into new ventures and compensation, it earns about 13% in operating margin and between 6% and 7% in net profit margin. Both have yet to go negative over the past 10 years, even as the company has invested in Redbox.

So, it seems that the company has a strong basic business. The question is, where is it headed? Will coins still need to be turned into dollars? Are discs going the way of the dodo? Are they working to automate shaves and haircuts, for three bits? Not far off. Coinstar isn't just sitting back and watching its machines that seem to print money -- it's looking to innovate and place more of them around the world.

Looking at growth rates, coin revenue increased 4% last quarter over the prior year, and Redbox revenue increased 26%, for an overall growth rate of 22%. The company also recorded 13% more unique credit cards used to rent for a total of 38 million and 42% more email addresses for a total of 43 million.

As growth matures in the U.S., the company acquired a competitor and also moved across the border. It now owns NCR's Blockbuster Express kiosks and plans to switch out several thousand for its own Redbox kiosks, as well as dump the underperforming ones. Coinstar is now introducing its coin-changing and Redbox machines into Canada, hoping to have around 800 units in Vancouver and Toronto by the end of 2012. It is also working with Wal-Mart Canada and Safeway Canada, as well as the country's largest supermarket and pharmacy chains.

If you're worried that loose change and discs don't have a long future, the company is trying out other concepts. It has launched its Rubi coffee machines that serve Seattle's Best, and it will have 500 kiosks deployed by the end of 2012. It could install as many as 15,000 of the kiosks in total. It is also testing out selling event tickets for a $1 fee in Philadelphia. It has a machine called Gizmo, which sells used electronics. It's invested in ecoATM, which allows people to trade in old electronics and cell phones for cash.

And discs won't be around forever. In 2011, DVD and Blu-ray rentals dropped 11% from 2010. To more directly address this issue, Coinstar partnered with Verizon  (NYS: VZ) to create Redbox Instant. Coinstar owns 35% of the partnership, which, although details remain murky, will stream movies over the Internet to all sorts of gadgets. According to CEO Paul Davis, Coinstar has a 42.5% market share that beats Netflix in terms of discs rented by more than 15%. Even though it wouldn't be the first mover in streaming movies online, it could be a real threat with its network of kiosks, emails, credit cards, and Verizon customers.

More in-depth analysis available
Above was just a sample of what's included in our new premium report on Coinstar. If you're an investor interested in figuring out if it's a good investment, make sure to get your copy of the report by clicking here.

The article The Opportunity in Coinstar originally appeared on Fool.com.

Fool contributor Dan Newman has no positions in the stocks mentioned above, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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