If you take a cursory look at a three-year chart of Walt Disney Co (NYSE:DIS), you might not like what you see. Disney stock has suffered multiple gyrations, as investors seem to be unsure what to make of the iconic company. With so much noise occurring in the broader markets — and DIS being a Dow Jones stock — should investors trust Disney or take their profits and run?
The question is somewhat personal for me. Back in early October of last year, I stated that Disney stock had fallen too far. Yes, it has major problems, such as declining TV viewership for professional sports, negatively impacting Disney-owned ESPN. However, the company is a content powerhouse, levering its Star Wars franchise to great effect.
But it’s not just Luke Skywalker and company that’s delivering the goods for Disney. The media giant has immense libraries of current and classic original content, which it will use in its streaming services. Furthermore, its acquisition of Twenty-First Century Fox Inc’s (NASDAQ:FOXA,NASDAQ:FOX) entertainment assets gives Disney even more valuable content.
In early December, I doubled-down on my bullishness towards Disney stock. I argued that despite heavy costs, management has a clear strategy with its acquisitiveness. Besides, the entertainment world is changing rapidly. The future is online streaming. Not having a presence in this burgeoning industry is simply unimaginable.
Still, I have to admit that Disney stock has been, so far, disappointing. Year to date, DIS is up a little over 2% — not exactly a groundbreaking performance. If the fundamentals are so great, how come investors aren’t recognizing them?
Disney Stock Well Positioned for Longer-Term Gains
While I recognize that DIS has many challenges ahead, I see no fundamental reason to panic. Sure, Disney stock could face some nearer-term turbulence, especially if the broader markets fails to convincingly reassure investors. But in the bigger picture, I think the company is positioning itself for sustainable growth.
First, Disney has solid financials. Highlights include operating and net margins, which are in the upper echelons of the global media industry. Additionally, its trailing three-year sales and earnings growth are notably above its industry’s median. Just as importantly, the company features strong, stable, free cash flow, enabling management to meet its daily obligations.
Second, I believe technical worries for Disney stock are overstated. While I’m not a fan of recent choppiness, I think potential buyers need to keep in mind one price point: $90. Over the past three years, the bears aggressively attempted to push DIS shares below this level. Though they succeeded in scaring some people, they ultimately failed in their endeavors.
Finally, the most critical reason why I’m maintaining my bullishness in DIS is tremendous revenue growth in the Asia-Pacific market. Yes, the total sales haul in 2017 was a disappointment, but that was because every sector except Asia tumbled. Year over year, U.S and Canada sales declined 1.7%. Latin America shed a surprising 4.7%. Europe is somewhere in the middle, losing 2.6%.
In 2017, this market brought in a little over $5 billion, representing growth of nearly 11%. What’s more, average growth over the past eight years is a whopping 12%! If it weren’t for a substantial blip in 2015 when growth was virtually nil, the average would have been higher.
Ignore the Noise and Buy DIS!
Granted, the nominal revenue for Asia-Pacific isn’t nearly enough to eliminate the company’s pressing concerns. Still, if we assume a conservative growth rate of 7%, the Asian market should exceed the European market by 2021.
Moreover, I think people should key in on Disney’s recent movie releases and other media ventures. For instance, the animated film Moana features a Polynesian girl as the leading star. The clunky and poorly written Star Wars: The Last Jedi redeemed itself somewhat by showing a diverse cast. In fact, the last two Star Wars releases featured Asian actors in prominent roles.
It’s nice to know that while we may not exist in Hollywood, more than a few people appreciate us in a galaxy far, far away!
All joking aside, Disney is making a strong, strategic push towards the Asia-Pacific market. Out of all the mainstream media companies, such as Comcast Corporation (NASDAQ:CMCSA) or CBS Corporation (NYSE:CBS), Disney gives the most opportunities to young, rising Asian actors. It’s a very smart move considering that they’re unashamedly wooing China and other Asian markets.
The drive to Asia demonstrates management’s combined intellect. Ultimately, though, you want to buy Disney stock because it’s a powerful company making the right decisions. It’ll take some time for some of the strategies to lift DIS shares. That, however, shouldn’t be a problem for the typical investor interested in this opportunity.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
