The entertainment industry continues to churn. Cable companies have been losing clients at a steady clip, Netflix (Nasdaq: NFLX) has seen its subscriber base grow erratically, and attendance at movie theaters has been weak for several years, as this article notes.#-ad_banner-#

Investors trying to identify winners and losers in this space have grown quite confused. After all, who knows how we’ll be getting our entertainment five years from now?

Perhaps it’s better to avoid looking too far out and simply focus on companies that are executing on their plan and look poised to build a solid base of sales and profits for the quarters ahead.

Looking at the forecasts for Coinstar (Nasdaq: CSTR), operator of the Redbox DVD kiosk service, the picture should be quite bright. The company, which recently exceeded second-quarter profit forecasts by roughly 7% compare with the same period a year earlier, appears poised for double-digit sales growth in 2012 and again in 2013 — and even faster profit growth.

Meanwhile, shares have slid roughly $20 from the 52-week high, and now look poised for a solid rebound.

I discussed Coinstar’s burgeoning opportunity about a year ago. Since then, shares surged steadily higher and it would have been wise to book profits this past spring. But if you missed the upward move the first time around, then you’ve just been handed a second chance.

In the intervening year or so, much has happened that can be summarized as a series of positives and negatives.

First, the positives:

• Coinstar was able to take advantage of the deep distress in the Blockbuster kiosk business, acquiring thousands of those boxes and slowly converting them over to the Redbox brand. There are now more than 35,000 DVD vending machines in service, up from around 29,000 at the end of 2011.

• Coinstar signed a major contract with Verizon (NYSE: VZ) to roll out a streaming video service, which saved the company millions of dollars in start-up costs.

• The company has made further progress in its testing of new kiosk concepts, such as hot coffee vending machines (known as Rubi), refurbished electronics and photo-producing kiosks.

• The company has made some recent strong management hires, including Marketing Executive Anne Saunders and David Asch, who will serve as director of content after holding a similar position at Frontier Communications (NYSE: FTR).

The negatives include:

The announcement that company President and Founder of Redbox Gregg Kaplan will depart by next spring.

• Hollywood has released fewer hot new titles in recent quarters, leading to the appearance of slowing growth in the DVD kiosk business.

• More consumers are keeping movies out for just one night, eating into the solid profits that come from delayed movie returns (as consumers pay for each night that a movie is out).

• Nevertheless, it’s important to look past quarterly dynamics and focus on annual results. After boosting sakes at least 25% in each of the past four years, Coinstar’s sales are slated to rise another 23% this year (to around $2.27 billion) while rising another 12% to 15% in 2013.

Equally important, this is a solidly profitable business. Per-share profits have risen by a solid clip each year since 2008 — despite the weak economy — and should exceed $5 by 2013. Take a look below at Coinstar’s earnings per share projections next year.

Coinstar’s Growing EPS

*Consensus estimates
 

Risks to Consider: The current quarter’s results may have been impeded by the Olympics, so it may be prudent to expect Coinstar to earn less than $1 a share this quarter, which reflects the low end of the range of consensus forecasts.

Action to Take –> Shares now trade for less than 10 times projected 2013 profits. On an EBITDA basis, they are stunningly cheap, trading for around 3.5 times projected 2013 EBITDA of around $550 million. Such a low multiple is likely because of concerns that the company’s operating metrics will soon turn south. But it’s crucial to remember that Coinstar’s detractors have been anticipating a major setback for this company for quite some time.

A half decade ago, many assumed the coin-counting business would peter out (though it never did). More recently, skeptics wondered how Redbox could compete with the convenience offered by DVD-by-mail firm Netflix (and that fear proved ill-founded). Now there is question whether Coinstar’s new forays into coffee, electronics and photos will make a splash. In effect, this company has a history of proving its detractors wrong, and the current move back to $50 sets the stage for another chance to prove the skeptics wrong.