Place strategy

A Closer Look at Disney: Can It Earn a Place in Your Portfolio?

Disney (NYSE: DIS) was covered by market beat earlier in our roundup of stocks that could be undervalued. The rationale for this thesis is that the company has reopened its theme parks post-COVID and has a growing streaming service. Disney is still trading near the bottom of its 52-week range, so the combination of these factors has put this company on some investors’ radar. This article will detail the pros and cons of the business to give you a balanced view.

Disney’s valuation is complicated

Although Disney is trading near historic lows for several periods, it can be considered expensive on other relative valuation measures. Compared to its industrial sector, Disney is 120.30% more expensive for its FWD P/E GAAP ratio at 40.69 versus 18.47. It’s also more expensive to buy a unit of Disney stock than competitors at the industry median at 2.78 vs. 1.93.

On the other hand, Disney’s previous EPS performance and valuation does not align well with today’s current levels. At the top of the business, its EPS was $8.91, or $1.45 today. At the company’s EPS peak, its P/E ratio was 12.31, which now sits at 30.15. Due to the business disruption due to COVID, it may take a few quarters or even several quarters for its fundamentals to normalize.

Strong growth numbers despite bearish sentiment

Another interesting factor with Disney is that the company has strong growth and revenue numbers as analysts recently downgraded the stock. Over the past three months, the stock has received 22 EPS downgrades and 21 revenue downgrades. Over the past 90 days, analyst ratings have looked more positive. 16 analysts rated the stock as a solid buy during this period, and 7 rated it simply as a buy. The remaining analysts who cover this stock consider it a reserve.

Disney’s FWD revenue growth is well above the industry median at 12.75% versus 8.40%. Other parameters also support strong growth, in particular its EBITDA FWD at 13.32% against 4.91%.

Disney vs. netflix

Netflix (NASDAQ: NFLX) competes with Disney on its streaming service. NFLX gave higher returns to shareholders over the 5 and 10 year periods. Disney reported a five-year shareholder value contraction of -2.47%, while NFLX posted a 24.12% gain. Over ten years, the growth differences are even greater, with 131.50% for Disney compared to 2,593.92% for NFLX.

In terms of valuation, NFLX is a slight winner. The FWD P/E ratio of 21.04 compares favorably to Disney’s valuation of 40.69.

Companies mentioned in this article

Compare these actions Add these stocks to my watchlist

Should you invest $1,000 in Walt Disney right now?

Before you consider Walt Disney, you’ll want to hear this.

MarketBeat tracks daily the highest rated and most successful research analysts on Wall Street and the stocks they recommend to their clients. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the market spreads…and Walt Disney wasn’t on the list.

While Walt Disney currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

See the 5 actions here