Is Disney Stock a Bargain After Recent Challenges?

All is not well with entertainment behemoth The Walt Disney Company (NYSE:DIS) which is struggling on many counts to keep its share price elevated.

After a long and illustrious legacy of movie-making and an empire that spans theme parks, cruises and streaming services, Disney has been sledding uphill for a while but is a turnaround on the cards?

Over the past three years, the company’s stock has lost more than 20%, while over the past year, it is down close to 4%. When you compare these figures to the broader market returns, they are downright dismal but maybe the disappointment for shareholders over the past few years is an opportunity for prospective buyers now?

We examine Disney’s financials and prospects to understand whether the stock could be a bargain buy near its lows or there is more downside risk for existing holders and new buyers.

The Way Movie-Watchers View Big Releases Has Changed

The so-called “Mouse House” earns a majority of revenues from its entertainment business that can be divided broadly into two segments: movies and streaming parts.

The box office business has had some stellar tailwinds last year. Disney became the number one studio in the world, based on some widely popular releases.

Last year, the company’s studio raked in a whopping $5.46 billion globally, which included $2.23 billion domestically and $3.23 billion internationally. 

The Disney studio’s repertoire included three out of the top four global movies of the year including two $1 billion films. Animated films are the company’s forte, so it was not surprising to see that two of the biggest names in animation came out of Disney last year. Inside Out 2 became the number-one animated film of all time with $1.7 billion at the global box office, and Moana 2 had the biggest weekend count during Thanksgiving.

Beyond the animated sphere, Disney’s Deadpool & Wolverine became the number-one R-rated film of all time with a global box office record of $1.34 billion. While there were higher expectations for Mufasa: The Lion King, the three aforementioned names were enough to reestablish Disney as the box-office global power.

While these numbers are well and good, there has been a stark change in consumer preferences over the past few years. Streaming has been a challenge in a world where Netflix has dominated and consumer preferences have substantially changed. Now, movie-watchers tend to only go to the theaters when highly anticipated releases are coming.

Netflix Remains The Streaming Thorn In the Side

Disney’s streaming services were a thorn in its side for a long time. It incurred more than $10 billion of losses over the past half-decade before finally turning a modest profit in 2024.

The multi-billion-dollar company has found it hard to find its footing in the streaming space, especially in the presence of Netflix, Inc. (NASDAQ:NFLX). The question is whether profits have come at the expense of content quality and whether they are sustainable.

Still, with a profit banked now, Disney is looking further afield for opportunities. Management entered into a whopping $8.5 billion merger with Reliance Industries late last year. This creates a big media powerhouse in India, combining Disney’s Star India with Reliance’s Viacom18 and streaming platforms JioCinema and Hotstar. The country is waking up to streaming services and is set to bring significant viewership to the platform.

Disney also kicked off this year with a bang, announcing a sports deal with fuboTV Inc. (NYSE:FUBO) to merge the former’s Hulu + Live TV and the latter’s Fubo. This is set to become the largest merger in the space and should bring some scale benefits. At the very least, it means a little bit less competition than had been the case.

Is Disney Stock a Bargain?

Disney stock is a bargain according to the consensus of 26 analysts who estimate fair value to be $127 per share but it’s worth being a little skeptical of those forecasts because 19 analysts have revised their earnings estimates lower for the stock in the upcoming quarter.

There isn’t a really high dividend payout to offset the share price declines with a 0.95% yield on offer, even after the pullback.

The numbers back the prediction with management last reporting Q1 results for fiscal 2025, a 5% jump in its top line, which came in at $24.69 billion, eclipsing what Street analysts had been expecting.

Finally, cost-cutting measures in full view as the company’s bottom-line financials are growing at a faster rate than the top line.

Despite all the so-so share price returns, Disney’s stock is not cheap trading at 19.88x forward non-GAAP earnings. Given the earnings multiple and valuation metrics are elevated, and the overall pessimism about an oncoming recession, it may be best to sit on the sidelines and see where the chips fall for now.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.