Walt Disney (DIS) Stock Analysis: Price Target, Risks, Strategy & More
10 juni 2022 
12 min. read

Walt Disney (DIS) Stock Analysis: Price Target, Risks, Strategy & More

Walt Disney has had a tough time in recent years. Its beautiful parks have been shut down. Disney+ is a success, but undergoing fierce competition. All of this is having an impact on Disney stock. The stock price is at the lowest level since 2015. Is this the time for Walt Disney stock buying, or are we better off waiting for calmer waters? In this article, we cover an analysis of the beautiful company and its financial valuation. 

Buy Walt Disney stock or not? Let's check out the analysis!

Stock Analysis: Walt Disney (DIS)

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An American multinational media and entertainment company headquartered in California, Walt Disney, is one of the world's most well-known and influential media and entertainment companies. It currently owns over 33% of the US film industry. And the company has assets that span movies, television shows, and theme parks.

In 1923, Walter Disney and his brother founded the company and initially produced animated films. But since its inception, the company has gone through many changes. Now, after nine decades, the company owns the ABC Broadcast network, along with other cable television channels, including Disney Channel, FOX, National Geographic, and ESPN, among others.  

The company's primary goal is to satisfy customers while gaining a competitive advantage over its rivals. With the ever-competitive environment in mind, the company wisely chooses its resources and capabilities and knows how to utilize them.

Further, Walt Disney used a variety of strategies to diversify and manage innovation and creativity to gain a competitive edge. 

Many novice investors wonder whether they should buy Walt Disney stock or not. For the long term, it depends on the strategy.

Should we buy Walt Disney stock based on strategy?

Here is a quick overview of the company's comprehensive growth strategies:

  • Primary Strategy - Product Development: A major focus of The Walt Disney Company's growth strategy is to develop new products. The strategy involves the company offering new products in its existing or existing markets.
  • Primary Strategy - Market Penetration: Disney's growth is largely driven by market penetration. With market penetration, the company can grow by increasing sales of current products in existing markets. 
  • Market Development: A less frequently used strategy in Disney's business is market development. In addition to expanding the company's business, this intensive strategy requires the company's management to introduce the company's existing products to new markets.
  • Diversification: Diversification is an important part of Walt Disney Company's business growth strategy. This intensive growth strategy is typically oriented towards developing and acquiring new businesses. 

Walt Disney scores high based on innovation and diversification. It also exploits its strong brand name to the maximum. This benefits profitability. On the basis of strategy, we would buy Walt Disney shares. In the long run, stock price growth is a consequence of a strong strategy and execution so that profits increase. 

But are its shares also favorably priced at this time? 

In our research method, we prefer unique and/or strong companies with a good long-term strategy. But we want to pay a favorable or fair price. Otherwise, we risk buying overpriced Walt Disney stocks, which will lower the return. 

Therefore, we select the best stocks based on both fundamental and financial analysis. First, let's review some fundamentals about Disney. Then we'll cover the financial valuation.

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Strengths and Weaknesses of Walt Disney (DIS)

Buying Walt Disney stock or not also depends on how strong the company is. Let's look at the strengths and weaknesses of the company

Strengths 

As a well-known broadcasting media company, Disney has many strengths that enable it to achieve the top ranking.

  • Disney's brand name and logo are well known and easy to recognize. After acquiring companies like 21st Century Fox, they attained an even greater brand recognition. The brand experience is the biggest strength of Disney in our opinion. This strength leads to profitable synergy opportunities as well.
  • With a strong cash flow system, the company has the ability to invest in projects of high quality and budget. One of the reasons the company produces highly acclaimed productions is because of this.
  • A significant portion of the company's materials come from high-quality suppliers. Quality is one of the company's priorities when buying raw materials.
  • There are many prestigious artists, story scriptwriters, and graphic designers on the Disney creative team, which is one of their most extensive offerings.

Based on its strengths, you would definitely buy Walt Disney stock. Why? Because the company has been offering the highest quality within the entertainment industry for decades. This includes all of its products, from movies to merchandising to its Disney parks. 

This position has now led to sustainable competitive advantage. No organization can surpass Disney. It is unique in its kind. But that does not mean that the organization does not have weaknesses and risks.

Weaknesses

Despite having many strengths, a company faces a number of weaknesses that affect its growth. Companies always struggle to eliminate these weaknesses. Disney is a company with some weaknesses, but its strengths can help it overcome those weaknesses.

  • The company invests heavily in training programs. For a company of its size, it can be problematic.
  • They spend a lot of money on their merchandise and products. And demand for such items fluctuates based on market conditions. Thus, the company must plan its manufacturing units according to market conditions.
  • Disney's financial planning is a cause for concern if we consider the competitive landscape in streaming and the ongoing lockdown in China. 
  • Dependence on revenues from the major Disney parks and its media platforms. From this perspective, diversification is highly desirable.

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Threats and Opportunities for Walt Disney (DIS)

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Opportunities and threats determine the long-term potential of Disney. We would not buy Walt Disney stock if it has many major threats.

Threats

Companies must deal with threats posed by a competitive market in order to grow. If they do not implement mitigation plans, even big companies can be affected by these threats. While Disney faces a few threats, it can overcome them with the right planning.

  • The company fails to maximize its resources 
  • All Disney play stores are located in developed countries. It is important that companies should not underestimate the buying power of developing countries, especially Asian countries.
  • In the medium to long term, new technologies developed by competitors or market disruptors could be a serious threat to the company.
  • Raw materials rising can harm the profitability of The Walt Disney Company
  • Disney is a premium brand with high quality and consequently a high price. A prolonged period of deteriorating consumer purchasing power can depress Disney stock sales and profits

Opportunities

When opportunities are sorted out and planned correctly, they can benefit the companies and support their growth. In terms of Disney's development, there are several opportunities:

  • The Disney brand is widely recognized, so that any company can use it for branding purposes.
  • Disney as a premium brand makes it easy to successfully launch new products (such as Disney+)
  • The Disney team consists of top-notch artists and scriptwriters. The company can therefore focus on its online streaming service, Disney+, which provides a wonderful chance to compete with streaming services such as Amazon and Netflix.
  • With its acquisitions of Pixar, Marvel, Fox, and so on, Disney has been able to expand and exploit the opportunities within different industry sectors and niches. In the future, Disney may make other strategic acquisitions to accelerate its growth.

Based on opportunities and threats, we see a lot of growth potential for the great Disney for now. Buying Walt Disney stock or not depends on this. Still, there are some risks. And then we look at an analysis of DIS stocks based on valuation.

Risks analysis of Walt Disney (DIS)

The main risks of Walt Disney (DIS) include high competition, the company's reliance on theme parks and resorts, and a lack of profitability.

First, Disney's competitors are strong. In addition to Netflix and CBS Corporation, there are other companies such as Amazon Prime Video (AMZN) that offer similar services at lower prices. This could make it difficult for DIS to attract new customers or increase its subscription rates in order to improve profitability levels over time.

Second, Disney's theme parks and resorts rely heavily on tourism and trade shows for their revenue, and these industries are particularly vulnerable to global economic downturns. 

At this particular time, profitability is low. Obviously, this is an aftermath of the covid-19 lockdown. This shows the vulnerability of Disney. This has made Walt Disney stock less attractive. 

To buy or not to buy Walt Disney stock based on financial valuation

Within the Happy Investors Community you will find extensive stock analysis. At this moment we would not buy Walt Disney shares. This is based on its financial valuation. In this article we will not provide a comprehensive analysis, but below you will find a brief summary for inspiration. 

  • Valuation: due to financial setbacks, Walt Disney stock is not favorably valued in the near term. The forward P/E ratio is 46.30. This is much higher than its historical valuation. And in our opinion not justified, despite new products like Disney+ (which also gives risk of competition). Also ratios like P/S and P/B are still a bit high, but lower than the 5-year historical average
  • Growth: for the short term, Disney is expected to grow by 13% in sales and about 14% in earnings. Although this is above the industry average, there are better stocks with much higher earnings growth. Disney stocks do score strongly on growth in cash flow
  • Profitability: current revenue and profit margins are currently lower as an aftermath of the covid-19 lockdowns. Nonetheless, Disney is generating billions in cash flow. This is positive
  • Momentum: Disney stock is in a bad momentum position, allowing for further price declines due to short-term trading

As indicated, we want to buy Walt Disney stock, or not, based on the mix between long-term strategy and financial valuation. Disney is a wonderful company. We would like to buy its shares. But we think that in the short term, a better price may emerge with further price decline.

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Price Target of Walt Disney (DIS)

It can be useful to look at the price expectations of Disney stock according to analysts. At least a general consensus provides some direction. Of course, this does not mean that you should buy Walt Disney stock on this basis. 

Wall Street Journal's Stock Price Target (DIS)

According to Wall Street Journal, based on analysts' offering, the average price target for DIS stock is $153.67, with a high estimate of $229.00 and a low estimate of $110.00.

Barron's Stock Price Target (DIS)

According to Barron's, based on analysts' offering, the average price target for DIS stock is $153.67, with a high estimate of $229.00 and a low estimate of $110.00.

Nasdaq's Stock Price Target (DIS)

According to Nasdaq, based on analysts' offering, the average price target for DIS stock is $154.7, with a high estimate of $229 and a low estimate of $110.

Conclusion: to buy Walt Disney or not?

As indicated, we are positive about buying Walt Disney shares based on long-term potential. But for the short term, we expect a further price decline which gives us a better entry point.

What do you think: buy Walt Disney stock or not?

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About the author
Raised by an entrepreneur, a master's degree in Organizational Science and Strategy, and a passion for investing. My name is Jorik Vermeulen, Founder of Happy Investors . For years I have been sharing my knowledge of long-term investing in stocks and ETFs to help you get started!
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