Disney’s (NYSE:DIS) stock got nearly a 14% boost last week. The catalyst – optimism surrounding expansion of the streaming service Disney+. Scheduled increase of prices across the U.S. and Europe, and the expectation that the service will become profitable on a stand-alone basis in the next four years, are some of the triggers that can continue to attract investors. So does that mean Disney is a good buy right now? Maybe not right away. But we think that there will be a slight pull back in the stock in the next 3 months, presenting a good price to build up positions for long-term gains. Our assessment is based on the output of our AI engine, expected triggers, and the analysis of fundamentals.
What does our AI engine say? Our AI engine analyzes past patterns in stock movements to predict near term behavior for a given level of movement in the recent period. It suggests nearly -6.7% return for Disney over the next 3 months, implying a near term pullback. However, the expected return increases to 2.5% for the next 6-month period. The growth beyond this is likely to be governed by triggers mentioned above. Our detailed dashboard highlights the expected return for Disney given its recent move. You can also use this to understand near-term return probabilities for different levels of movements.
For a long-term horizon, we look at the underlying fundamental support. Turns out, Disney has plenty of it. Our dashboard Big Movers: Walt Disney Moved 14% – What Next? lays out critical financial metrics.
Walt Disney’s stock price increased 6.6% this year, from $144.63 to $154.14, before moving 14% last week, and ending at $175.72. At the beginning of this year, Walt Disney’s trailing 12 month P/S ratio was 3.44. This figure increased 41% to 4.85, before ending at 5.53. Does this mean that Disney is an expensive stock? Not really. A comparison with peers makes it clearer. Compared to Disney, the trailing 12 month P/S ratio for Netflix and Comcast stands at 9.58 and 2.25 respectively. So Disney is somewhere in the ballpark, but we will argue that with billions of dollars of investment in streaming – it is becoming more like Netflix (barring the theme parks business). Thus, we do not think that current multiples are too high. Though there remains a likelihood of a pullback as discussed before.
If we look at the last few years, we find a healthy trend. Disney’s stock price increased 34.5% between 2017 and 2019, and has increased 63% between 2017 and now. Its revenue grew 26% from $55,137 Mil in 2017 to $69,607 Mil in 2019. For the last 12 months, this figure stood at $65,353 Mil, implying only a slight decrease of -6% over 2019 numbers. That’s not bad considering how theme parks were closed during the pandemic. Margins have taken a hit given high fixed costs of running theme parks and ticket sales plummeting, but historically, Walt Disney’s net margins have remained above a healthy 15%. Thus, re-opening of theme parks is going to have a significant positive impact on profitability, and can be considered as another reason to buy the stock.
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