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1 Reason To Avoid Disney (DIS)

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both will help you earn higher than average investment returns and build your wealth.

This is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.

But most only think of investing well. 

Today, I want to show you 1 Reason To Avoid Disney (DIS) so you can continue building your wealth safely.

1 Reason To Avoid Disney

It’s Enormously Overvalued

Normally in these articles I talk about profitability, cash flow, the affects coronavirus is having on a company’s financials among other things.

But frankly none of those matter with Disney (DIS) due to its huge valuation.

Walt Disney company is a worldwide leader in content, characters, theme parks, movies, toys, TV shows, and much more.

Some of its most famous brands are…

  • Marvel
  • Star Wars
  • Disney+
  • Mickey Mouse

Among many others.

Its seen large increases in revenues and profits in the last decade.

Revenue grew 83.2% from $38.1 billion in 2010 to $69.8 billion in the trailing twelve months (TTM) period.

EDITORS NOTE – TTM is simply the last 12 months of financial results consecutively.

Operating profits rose 77.6% from $6.7 billion in 2010 to $11.9 billion as of the end of 2019.

This fantastic growth in revenues and profits helped skyrocket Disney shares in this time.

From $33.30 per share at the end of 2010 to $141.07 per share as of this writing.

This is an increase of 290.5% in the last decade.

You’re doing well if you earn 10% investment returns per year on the stocks you own.  Disney produced investment returns of 29.1% per year on average over the last decade.

Its growth should continue as well as with Disney+ now having more than 60 million subscribers worldwide.  And Disney transitioning more to this streaming platform and away from parks and experiences due to the coronavirus.

This is all great for Disney and its shareholders over the last decade… But it also leads to a huge problem.

It’s massively overvalued.

Its P/E is 51.2.

Its P/CF is 33.5.

Its forward P/E is 62.9.

And its enterprise value to operating income – EV/EBIT is 168.3.

On all three metrics at the top I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

This means, Disney is overvalued by a large amount right now.

And this means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning its stock going forward.

With Disney being overvalued it makes the investment riskier.  Especially with the still ongoing pandemic negatively affecting its parks, experiences, hotels, and cruise line businesses.

Does this mean I think Disney stock will crash and burn?

No.  I expect it to continue performing well going forward… But not as well as it did in the past due to its large valuation.

For the reason of its overvaluation I recommend you avoid its stock right now… There are safer, cheaper, and higher return stocks you can buy now.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.


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