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

Disney NYSE: DIS has been covered by MarketBeat previously in our roundup of stocks that could potentially be undervalued. The rationale behind this thesis is that the company has reopened its theme parks after COVID and has a streaming service that's gaining steam. 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 company's pros and cons to give you a balanced viewpoint.

Disney’s Valuation Is Complicated

Despite Disney trading near historical lows for several timeframes, it can be considered expensive on other relative valuation metrics. When compared to its industry sector, Disney is 120.30% more expensive for its FWD P/E GAAP ratio at 40.69 compared with 18.47. It's also more expensive to buy one unit of Disney shares than competitors in the sector median at 2.78 compared with 1.93.

On the other hand, Disney's previous EPS performance and valuation do not stacks up well to today's current levels. At the company's peak, its EPS was $8.91, which is $1.45 today. At the company's peak EPS, its P/E ratio was 12.31, which now stands at 30.15. Due to the business disruption of COVID, it may take a couple 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 while analysts have recently downgraded the stock. In the last three months, the stock has received 22 down EPS revisions and 21 revenue down revisions. For the last 90 days, analyst ratings have looked more positive. 16 analysts rated the stock as a strong buy during this period, and 7 rated it simply as a buy. The remaining analysts who cover this stock rate it as a hold. 

Disney's FWD revenue growth is far above the sector median at 12.75% compared with 8.40%. Other metrics also support strong growth, including its FWD EBITDA at 13.32% compared with 4.91%.

Disney Vs. Netflix

Netflix (NASDAQ: NFLX) competes with Disney in its streaming service. NFLX has given higher returns to shareholders across the 5-year and 10-year timeframes. Disney reported a five-year contraction in value to shareholders at  -2.47%, while NFLX delivered a gain of 24.12%. Across ten years, the differences in growth figures is even more significant, with 131.50% for Disney compared with 2,593.92% for NFLX.

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