DIS Rises Today, But Is Still Off 52 Week High.

Shares of Walt Disney (DIS) jumped 0.5 % during today's morning session, bringing their 52 week performance to -25.0%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe that a complete stock analysis should also take into account the company's poor growth indicators and mixed market sentiment.

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The large-cap Consumer Discretionary company is based in Burbank, United States and has 171,600 full time employees.

DIS Has a Higher P/E Ratio Than the Sector Average

Compared to the Consumer Discretionary sector's average of 22.33, Walt Disney has a trailing twelve month price to earnings (P/E) ratio of 68.4 and an expected P/E ratio of 16.7. The P/E ratios are calculated by dividing the company's share price by its trailing 12 month of $1.2 or forward earnings per share of $4.92.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Walt Disney's P/E ratio is higher than its sector average of 22.33, we can deduce that the market is overvaluing the company's earnings.

Walt Disney Is Fairly Valued in Terms of Expected Growth

Another factor pointing to Walt Disney's value is its PEG ratio of 1.09. This is the stock's price to earnings ratio divided by its estimated earnings growth rate. If the resulting ratio is near or lower than 1 -- but higher than 0 -- its indicates that the company is faitly valued in terms of expected growth.

DIS Has an Average P/B Ratio

Traditionally, stock pickers used to focus primarily on finding issues that were trading significantly below their tangible asset value, to guarantee themselves a margin of safety. But such an approach would screen out many valuable securities because many profitable businesses -- especially those that heavily leverage information technology -- simply do not have many tangible assets compared to more capital intensive companies.

Therefore, modern value investors tend to focus less on absolute price to book value (P/B) ratios. Instead of singling out stocks with a P/B ratio of less than 1, they will compare the target company against its peer group. For Walt Disney, the P/B value is 1.54 while the average for the Consumer Discretionary sector is 3.12.

DIS's Weak Cash Flow Generation Is Troubling

The table below shows that Walt Disney is not generating enough cash. A well run company will generally have cash flows that reflect the strength of its underlying business, and in Walt Disney's case, free cash flow is growing at an average rate of 0.0% with a coefficient of variability of 102114724723.8%. We can also see that cash flows from operations are evolving at a 0.0% rate, versus 0.0%:

Date Reported Cash Flow from Operations ($ k) Capital expenditures ($ k) Free Cash Flow ($ k) YoY Growth (%)
2022-11-29 5,937,000 -4,943,000 10,880,000 13.91
2021-11-24 5,973,000 -3,578,000 9,551,000 -19.13
2020-11-25 7,788,000 -4,022,000 11,810,000 8.75
2019-11-20 5,984,000 -4,876,000 10,860,000 -42.11
2018-11-21 14,295,000 -4,465,000 18,760,000 17.5
2017-11-22 12,343,000 -3,623,000 15,966,000

Walt Disney's Margins Are Strong

If you buy a stock for the long run, you want the underlying business model to be profitable. Gross margins tell you how much profit the company generates compared to the cost of revenue, which is the cost directly related to providing Walt Disney's goods and services. Operating margins, on the other hand, tell you how much of these profits the company keeps after you take overhead into account.

Walt Disney's Gross Margins

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-11-29 82,722,000 -54,401,000 34 3.03
2021-11-24 67,418,000 -45,131,000 33 0.0
2020-11-25 65,388,000 -43,880,000 33 -17.5
2019-11-20 69,607,000 -42,061,000 40 -11.11
2018-11-21 59,434,000 -32,726,000 45 0.0
2017-11-22 55,137,000 -30,306,000 45

Walt Disney's Operating Margins

Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-11-29 82,722,000 -21,551,000 8 60.0
2021-11-24 67,418,000 -18,628,000 5 -16.67
2020-11-25 65,388,000 -17,714,000 6 -64.71
2019-11-20 69,607,000 -15,716,000 17 -32.0
2018-11-21 59,434,000 -11,871,000 25 0.0
2017-11-22 55,137,000 -10,958,000 25

Walt Disney's cost of revenue is growing at a rate of -0.0% in contrast to -12.6% for operating expenses. Sales revenues, on the other hand, have experienced a 0.0% growth rate. As a result, the average gross margins growth is 0.1 and the average operating margins growth rate is -17.0, with coefficients of variability of 15.1% and 64.8% respectively.

Walt Disney Benefits From Positive Market Signals

The market sentiment regarding Walt Disney is overwhelmingly positive. The stock has an average rating of buy and target prices ranging from $146.0 to $65.0. DIS is trading -25.13% away from its target price of $109.61. 1.1% of the company's shares are tied to short positions, and 65.0% of the shares are held by institutional investors.

Date Reported Holder Percentage Shares Value
2023-06-30 Vanguard Group Inc 8% 148,893,179 $12,218,919,098
2023-06-30 Blackrock Inc. 7% 121,963,009 $10,008,894,631
2023-06-30 State Street Corporation 4% 73,142,473 $6,002,437,225
2023-06-30 Morgan Stanley 2% 44,122,932 $3,620,948,522
2023-06-30 State Farm Mutual Automobile Insurance Co 2% 33,783,812 $2,772,468,614
2023-06-30 Geode Capital Management, LLC 2% 33,246,496 $2,728,373,775
2023-06-30 Northern Trust Corporation 1% 22,475,069 $1,844,416,592
2023-06-30 Bank Of New York Mellon Corporation 1% 20,559,248 $1,687,194,737
2023-06-30 Price (T.Rowe) Associates Inc 1% 18,301,007 $1,501,872,184
2023-06-30 Bank of America Corporation 1% 17,236,490 $1,414,512,593
The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.