Disney’s (NYSE:DIS) stock has dropped nearly 10% this year and 55% from its pandemic peak.
Indeed, as far as mega cap stocks are concerned, Disney really is on the out with many investors. Whether that’s because this company’s political stances have rubbed some consumers the wrong way, or its offering seems stale to others, remains the key question many investors are asking.
While I’d argue the company’s core value remains strong, it’s also true that recent earnings numbers have disappointed.
With uncertainty ahead, there’s really nothing left to do for many investors but to sit on the sidelines and wait for the next rally. The company is looking to make moves, with Disney’s CEO Bob Iger considering divesting underperforming TV assets to boost profitability.
However, the question is whether these moves will be too little, too late to assuage invetors.
Let’s dive into whether now’s the time to sell this all-time favorite stock.
The Stock Is Trading Close to Fresh Lows
Disney’s stock is incredibly nearing its Covid low of $79.07 in March 2020. Pre-pandemic, the stock traded as high as $153, boasting a promising lineup of movies and Disney+.
After rebounding from COVID lows and surpassing $200 during the pandemic, Disney faces challenges.
Cinemas struggle to compete with home entertainment, Disney+ faces tough competition, superhero movies are losing appeal, and Star Wars may have faltered. Live-action reboots have also disappointed.
Notably, ESPN faces viewership challenges in a fragmented market and tough negotiations with cable carriers.
Despite its premium valuation, DIS stock may provide earnings per share of only $4.96 next year, which is 16-times forward earnings but 21-times this year’s earnings, making the stock less appealing for value investors.
With a pessimistic growth outlook ahead, there’s not a lot to like about Disney’s relative valuation at these levels. Investors looking at this stock from a fundamentals standpoint alone have reason to be concerned.
Recent DIS News
Investors seek a clear path to Disney’s revival under CEO Bob Iger, focusing on effective execution of a viable strategy for stock confidence. Disney’s stock slump to a 52-week low reflects investor concerns about the company’s direction under Iger, lagging the market.
Contract negotiations between Disney and Charter have turned contentious, leading to a blackout of Disney channels on Charter-owned Spectrum.
Disney has advised Spectrum subscribers to consider Hulu + Live TV as an alternative to bypass the channel blackouts.
The outcome of contract negotiations could affect Disney’s future earnings. Investors are anxious about potential restructuring following recent layoffs at Disney.
In July, Iger mentioned a comprehensive review of Disney’s traditional TV assets, hinting at a potential sale of linear TV channels due to cord-cutting trends. No further updates have been provided, causing unease among investors.
Iger has emphasized keeping the ESPN brand. This signals Disney’s commitment to ensuring long-term success.
Disney Is Losing and Gaining Subscribers
In India, Disney+ saw a drop in subscribers for its lower-priced version, but globally gained 800,000 new subscribers. Disney increased the monthly fee for its ad-free variant to $11 and is taking steps to curb password sharing, showing potential growth in streaming.
That said, Disney needs to focus on expanding its library to encourage more subscribers and attract investors.
Disney’s stock has multiple headwinds, but it remains an attractive buy because of its strong financial position, a robust portfolio of businesses, and proven leadership under Bob Iger.
Investors can keep an eye open for news regarding assets sales or strategic partnerships.
It’s my view that Disney’s true value lies in its impressive stable of intellectual property and copyrighted brands. Content is still king, and in this world of writers strikes, timeless content could become a lot more valuable.
I’m not willing to write off DIS stock that these current valuations, and do think the company’s earnings could push higher over the long-term.
The thing is, my investing time horizon with this stock is longer than most, so for those patient investors looking to pick up DIS stock on the cheap, it’s always been best to buy when no one else wants to. That’s right now.
On the date of publication, Chris MacDonald has a LONG position in DIS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.