The Walt Disney Company (NYSE: DIS) was founded in 1923 but didn’t go public until 1957 when it joined the New York Stock Exchange at a share price of $13.88. The company’s stock has risen 4,500% since then, alongside consistent earnings growth.
However, recent years haven’t been kind to the entertainment giant.
The above chart shows how Disney’s stock mostly trended up normally until the pandemic hit in 2020, when park and theater closures shuttered large parts of its business. The company enjoyed a short-lived rally in 2021 as investors banded around its recently launched streaming expansion. However, Disney’s share price has plunged 50% since peaking in the spring of 2021.
Pandemic headwinds combined with an expensive venture into streaming led to investor pullback — a situation that has taken Disney years to come back from. However, recent earnings suggest there’s finally light at the end of the tunnel and a recovery is underway.
As a result, Disney’s stock appears to be a bargain after major declines. So it’s become a growth stock down 50% to buy right now.
On a more stable growth trajectory than its rivals
Disney posted its third-quarter 2024 earnings on Aug. 7. Revenue increased by 4% year over year to $23 billion, outperforming Wall Street estimates by $70 million. Meanwhile, earnings per share of $1.39 beat by $0.20. The period also delivered impressive gains in operating income, which rose 19% year over year to more than $4 billion.
A profit boost was mainly due to growth in Disney’s entertainment segment, which saw operating income nearly triple after a major win in streaming. In Q3 2024, the company’s streaming business, which includes income from Disney+, ESPN+, and Hulu, hit profitability for the first time — a quarter earlier than expected.
Streaming is a notoriously challenging and costly industry to break into. The chart above compares the earnings growth of some of the top entertainment companies. Warner Bros. Discovery and Comcast have delivered significantly less financial growth over the last year than Disney. While many factors are at play here, it’s relatively widely known these organizations have faced repeated headwinds expanding into streaming.
Meanwhile, Disney’s solid recovery following a global pandemic and subsequent economic downturn illustrates its staying power and ability to navigate poor market conditions successfully. A recent win in streaming also proves the potency of the Disney brand, as it’s been able to retain subscribers.
Disney stock is a bargain compared to its potential
Disney has enjoyed many wins this year. In addition to turning a profit in streaming, the company is the only film studio to make more than $1 billion at the box office in 2024. And Disney has done it twice — with Inside Out 2, released in June, and Deadpool & Wolverine, which debuted in July.
The success of this year’s Deadpool threequel has reinvigorated interest in Disney’s Marvel Cinematic Universe, which had grown stale with audiences after a string of low-performing entries. However, the box-office darling has bolstered hype for new Marvel titles coming in 2025, including the Daredevil: Born Again series for Disney+ and The Fantastic 4: First Steps film, which will be released next July.
Recent quarterly earnings and an exciting content roadmap have put Disney on a promising growth path. Q3 2024 saw some slowdown in the company’s parks division, with experiences operating income of $2 billion, down 3% from the previous year.
However, park earnings often ebb and flow with the economy and consumer spending power, which has faced uncertainty in recent years. Streaming growth remains a solid reason to invest in Disney, diversifying its business and allowing it to lean less on parks.
Moreover, this chart shows Disney’s stock is potentially trading at its best value in years, with its price-to-earnings ratio (P/E) and price-to-sales ratio (P/S) below their five-year averages.
Repeated hits to Disney’s business since 2019 inflated its P/E and P/S at times. However, positive quarterly results and a sell-off in recent years have made Disney’s current position a bargain compared to its potential. The company is in recovery mode, making now an excellent time to buy the dip on this well-known growth stock.
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Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walt Disney and Warner Bros. Discovery. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.
1 Growth Stock Down 50% to Buy Right Now was originally published by The Motley Fool
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