Adding 29 cents to its share price on Wednesday, Blockbuster Inc. (NYSE: BBI, BBI message board) has traveled up as much as 32% for the day, breaking the 1 dollar share price barrier - something the stock has been attempting to accomplish since May. Let's find out if this breakout will last or simply fade out as the previous moves did.
The stock gained some momentum after Blockbuster announced that they have made progress with letters of credit, reducing the outstanding amount by $50 million, reducing their potential debt to Viacom, Inc. (NYSE: VIA) , the former parent company. The news has further increased investor optimism which has been building since the company sold their Ireland subsidiary, adding $45 million to their bank accounts.
However, the optimistic mood towards the company doesn't necessarily mean that their performance will continue to get better. First steps are made, but investors are likely to remain cautious about the company's future. Blockbuster's balance sheet is still considerably weak, and continuing losses from operations makes it uneasy for the company to anticipate a quick improvement.
Not looking for a long term investment here, investors can still profit from the current improvement. It looks good enough to carry the stock price up and the move has prevented the correction that was underway. If the breakout is to continue, the next price target would be around $1.50, before some resistance possibly kicks in. Of course, historically, the stock has already been near the current price level in May and June, and fell back both times. This time it broke out a bit further so chances of follow through are larger.
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