Walt Disney Co (DIS) Stock Has Tanked Far Enough to Make It Interesting

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The “Magic Kingdom” may be enchanting, but Wall Street investors aren’t seeing it that way. Walt Disney Co (NYSE:DIS) suffered a choppy September, ultimately closing out the month down 3%. The bearish trend is a recent hallmark of the DIS stock price, which has been in free fall since April-end. Can the entertainment giant finally get its groove back?

Dis Stock price

Optimists will immediately fire back that the selloff is overdone. While the DIS stock price hasn’t offered much inspiration, plenty of reasons exist to remain patient. First and foremost are the company’s vast resources. A prime example is Walt Disney World, which spans a city-like 25,000 acres. Should management choose to expand its theme-park footprint, it can easily do so, capacity wise.

Of course, an investment in Disney stock represents more than just theme parks. DIS stands among the creative content elites, and it’s aggressively expanding its library. The company’s high-level procurements, including the universally coveted “Star Wars” franchise, allows it to compete with movie-studio giants Comcast Corporation (NASDAQ:CMCSA), Twenty-First Century Fox Inc (NASDAQ:FOXA), Time Warner Inc (NYSE:TWX), and many others.

Disney is not just for kids anymore. But at the same time, the DIS stock price isn’t reflecting what theoretically should be broader enthusiasm. No matter how much you look at the fundamentals, the market always has the final word.

Admittedly, that word isn’t very encouraging. Should investors still hold on to Disney stock, or is this ride finally coming to an end?

Breaking down the DIS stock price Drama

Disappointing guidance in early September, when CEO Bob Iger revealed that Disney would fall short of 2017 full-year estimates, pummeled the DIS stock price. In just a single session, shares dropped more than 4%. Iger stated that this fiscal year’s profits would be “roughly in line” with the prior year.

But the bigger problem is what to do about the “cable-cutting” scourge. As InvestorPlace contributor Will Healy noted, “Cable TV accounted for 30% of revenues and 43% of profits in 2016.” These figures spell big trouble for Disney-owned ESPN, which both liberals and conservatives view as socially tone deaf. Recent controversies do nothing to ameliorate declining ratings, particularly in the sporting arena.

All of the company’s problems severely pressured Disney stock. Year-to-date, shares are down 3%, and since May 1, the company shed more than 11%. Presently, DIS demonstrates what I would term the classic “falling knife” trend — lower highs and lower lows.

Infographic: Disneyland is the Most Instagrammed American Attraction | Statista You will find more statistics at Statista

But we also have to consider the flip side. The entertainment icon took to heart an old adage: if you can’t beat them, join them. To that end, Disney pulled its programming from Netflix, Inc. (NASDAQ:NFLX) so that it can concentrate on its streaming business. Wall Street generally views the move as a net positive for DIS stock, and why not? It’s a content powerhouse.

 

Our own Tim Biggam encourages readers to “ride out the storm.” One of his arguments is that at this level, the DIS stock price doesn’t accurately reflect fundamental value. Right now, the price-earnings ratio is below the company’s five-year average and well below the benchmark S&P 500 Index.

I’m not the biggest fan of reading too deeply into PE ratios. However, Disney stock is a blue-chip investment where such analyses are more meaningful.

DIS Stock Holding Strong

I’m also not big on buying shares that exhibit the aforementioned knife-falling trend. Typically, companies stuck in this situation won’t stop bleeding until we can see a discernible support channel. Even recent upside momentum doesn’t come close to breaking the declining resistance line anchored since the end of April. Therefore, a high degree of risk exists that buyers who jump in now may be disappointed.

Normally, I’d advise people to steer clear based on the price action. But we’re talking about Disney stock, which has weathered multiple storms thanks to its incomparable resource base. As a much more refined machine than what it was during the 2000’s era, I’d give DIS a chance.

And while the DIS stock price has recently shaken many, its longer-term picture isn’t so bad. We see strong support clearly defined at the $90 level. Unless shares are in danger of falling below that critical level, potential investors can have confidence towards a solid discount.

DIS stock price
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Source: Source: JYE Financial, unless otherwise indicated

Certainly, I do not want to gloss over the challenges negatively impacting Disney stock. Nor am I under the illusion that prices can’t fall further, because they can. However, with the strength of its entertainment and content assets, I don’t want to make the mistake of doubting Disney. If any stock is worth the risk, it’s DIS.

As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/walt-disney-co-dis-stock-has-tanked-far-enough-to-make-it-interesting/.

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