The Walt Disney Company (NYSE:DIS) faced numerous challenges in the past few years, prompting a bearish trend for the entertainment company. DIS stock lost nearly 20% in the past month and is down 28% year-to-date to $111.43 per share. The stock has been mostly flat over the day, but a trend reversal might not take investors by surprise.
Closed theme parks during the pandemic and the recent political clash with Florida Governor Ron DeSantis, resulting in dissolving Disney’s district powers in Florida, contributed to sending DIS stock close to pandemic lows. While the measure allows for a reestablishment of Disney’s district in the future, these hiccups might continue to weigh on the stock in the short-term. Yet, the selling pressure has been inflated and the political battle is not expected to impede the strong fundamentals of the diversified entertainment company.
After investing substantially to grow the company, 2022 might be the payback year. Analysts expect Disney’s top line to increase 25.7% to $84.7 billion this year, whereas net profit is forecasted to soar 201.2% year-over-year to $6 billion. With this solid advance, the group is expected to increase profit margins by 413 basis points to 7.09% this year. Additionally, net debt should decline moderately over the year, down 6.3% to $36.02 billion, representing a manageable leverage ratio of 2.21x in 2022.
DIS stock is, however, overvalued in terms of valuation metrics. The bearish momentum could bring renewed headwinds to the stock. The company exchanges at 32.4x forward price-to-earnings ratio and 14.7x 2022e enterprise-value to-EBITDA ratio. Despite that, the upside potential on DIS stock stands at 65.84% in the next twelve months. This corresponds to a target price of $184.95 per share. Besides, Disney has a strong buy rating and recent weakness is an opportunity to acquire a fast-growing company with enriching profitability.
On the date of publication, Cristian Docan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.