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One of the most interesting engines in the current bloodbath of a market is red box entertainment (NASDAQ:RDBX). Today, RDBX shares are up over 35%, continuing this week’s impressive price moves. On a weekly basis to date, Redbox is now trading at more than double where these stocks entered the week.
Given the impressively bearish macro environment, this move is pretty incredible. Today, the market has continued to sell off on the news that inflation has not peaked. May’s CPI figure was 8.6%, a new high not seen since 1981. Many are calling for inflation in the 9-10% range this summer, should gas prices stay high.
For valuations of most growth-oriented, technology-related stocks, this is not good. Companies like Redbox with business models that can be, shall we say, extremely speculative, even more so. That said, this company is still being acquired by Chicken Soup for the Soul Entertainment (NASDAQ:CSSE) for $375 million. Today, the company’s market capitalization has just reached $580 million.
Let’s dive into what’s driving this amazing movement at Redbox today.
Why does RDBX stock continue to rise?
When an acquisition is announced and approved, as has been the case with this upcoming $375 million acquisition, typically the company being acquired negotiates around its acquisition price. Any kind of deviation (discount or premium) from this price is usually an indication that the offer may not fail (discount) or another bidder may appear (premium).
However, that doesn’t seem to be the case here. Rather, it appears that the rapid rise in RDBX shares is the result of short mania. Once again, retail investors are finding names to pile on for quick profits. The latest target is the ramshackle DVD rental kiosk company Redbox.
Overall, this rally does not appear to be sustainable. In fact, anyone buying at these levels is likely to be hurt.
I am not buying this move and I personally think RDBX stock could be one of the most dangerous names to play in this space. That said, investors always play at their own risk. That’s the fun of investing.
As of the date of publication, Chris MacDonald did not have (directly or indirectly) any position in the securities mentioned in this article. The views expressed in this article are those of the writer, subject to the InvestorPlace.com Posting Guidelines.