Is Disney Stock a Good Buy? - Analysing the Risks
Investing in Disney stock seems to have become one of the most fashionable decisions among major investors around the world, from George Soros to Greenlight Capital (David Einhorn's investment fund) to the Saudi Arabian sovereign fund (The Public Investment Fund or PIF).
In this article, we will analyse the Walt Disney Company's revenue, earnings per share and historic stock value, before providing 5 reasons to invest in Disney as well as highlighting some of the risks involved.
Disney is one of the most well known companies in the world, as well as one of the largest. Founded in October 1923 by Walt Disney, its first big success came in 1937 with Snow White. Disney shares have been listed on the New York Stock Exchange since November 1957 and it currently holds the leading position among media companies, ahead of Comcast, WarnerMedia and ViacomCBS.
Latest Quarterly Results
The Walt Disney Company recorded a net profit of $475 million in its second fiscal quarter, ending 28 March 2020, down 91% from the same quarter last year. This dramatic drop was caused by restrictive measures taken by governments around the world in order to curb the outbreak of Covid-19 and which have included the closure of theme parks and cinemas. The cancellation of professional sporting events has also negatively impacted ESPN, of which the Walt Disney Company holds an 80% stake.
Adjusted earnings per share (EPS) for the Walt Disney Company, came in at 60 cents, 63% lower than the previous year.
Despite this drastic fall in profit and EPS, news would have been worse, were it not for its Disney+ streaming platform. This platform was launched in the US in November 2019 and arrived in the UK and several other European countries at the end of March 2020 to great reception.
Disney+ and Hulu (of which Disney owns 67%), as well as other international platforms and channels of the company, managed to increase their sales by 272% during the quarter. Although it should also be noted that the implementation of these two platforms also generated high costs. Disney+ users increased to 33.5 million by the end of Q1 2020 and reached 50 million in May, far better than the company's initial forecast of 50 million subscribers by the end of 2020.
Depicted: The Walt Disney Company's Revenue 2015 - 2019 in millions of US dollars. Chart created by Admiral Markets based on data from the Annual Financial Report 2019. Please note: Past performance is not a reliable indicator of future results, or future performance.
The coronavirus pandemic has damaged not only the Walt Disney Company's income but also its recent positive momentum (which we will look at in detail later). However, as we have seen already, Disney has a very diversified business and, despite the difficult period in which the company currently finds itself, the data available points to it coming out of this crisis in good health. To cope with the negative impact of the coronavirus pandemic, Disney has taken measures to cut costs, such as the temporary dismissal of employees and the reduction of executive salaries. The bad news for investors is that the company will not pay the half yearly dividend which was scheduled for July 2020.
Disney announced in June 2015 that it would begin to pay its dividends semi-annually rather than annually, as it had done for the previous three years. Therefore, in the following illustration, it must be noted that dividend payments made in the fiscal year of 2015 includes the dividends of fiscal year 2014 ($1.15) and the first half of the fiscal year 2015 ($0.66).
Depicted: The Walt Disney Company Earnings per Share in US Dollars 2015 - 2019. Chart created by Admiral Markets based on data from the Annual Financial Report 2019. Please note: Past performance is not a reliable indicator of future results, or future performance.
As we can see from the above chart, the dividend has been increasing gradually in recent years, with the exception of the necessary adjustment for 2015. These figures are a far cry from the 40 cents paid in 2011 or the 21 cents in 2001.
Despite the cancellation of the July dividend, analysts remain optimistic about Disney and its recovery.
In fact, according to a report filed with the US Securities and Exchange Commission (SEC), Saudi Arabia's Public Investment Fund (PIF) has taken a significant stake in Disney, in its opportunistic search for bargain US shares after the coronavirus-induced market falls. Similar investments were also made by George Soros of Soros Fund Management, David Einhorn of Greenlight Capital and Dan Loeb of Third Point, to name a few.
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Disney's shares trade on the New York Stock Exchange (NYSE) and in May 1991 were trading at about $10 per share. Less than three decades later, its shares are trading at over $111 (June 2020), reflecting the enormous growth of this conglomerate throughout its history.
Some of their major share price rises have been immediately preceded by significant events in its history, such as the acquisitions of large franchises. In the following graph we can see how, since the beginning of 2009, there is a sustained upward trend until 4 August 2015, when the price reaches its historical maximum, to that point, of $121.60. That same year, Star Wars Episode VII: The Force Awakens was released. Despite this, however, by the end of 2015, Disney shares began to fall to around $90 as sports channel ESPN lost subscribers to its competitors.
In the years that followed, Disney stock regained ground and, in April 2019, the announcement that streaming platform Disney+ would be released later that year caused share prices to shoot up. On 26 November that year, two weeks after the successful launch of Disney+ in the US, Canada and the Netherlands, Disney's shares reached their last historic high of $153.37. From that moment on the price lost strength before the negative jolt caused by the outbreak of the coronavirus.
Source: Admiral Markets MetaTrader 5 with MT5-SE Add-on DIS weekly chart (between April 2007 and 2 June 2020). Accessed: 2 June 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance
If we look closer in the graph below, we can see (highlighted by the blue rectangle) how the coronavirus pandemic, which brought the closure of theme parks, cinemas and shops, caused Disney's share value to plummet, reaching a low of $79.05 on 18 March 2020, a price it had not touched since 2014. After this collapse, Disney stock began to recover, reaching $127.78 on 5 June 2020.
However, the shares soon fell on 11 June 2020 to $112.23 amid a general stock market decline over fears of a second-wave of coronavirus. After recovering slightly, Disney stock fell again on 24 June to $110.04. This latest decline followed the announcement that the reopening of Disneyland California would be delayed as a result of the state's spike in coronavirus cases.
At the time of writing this article, 30 June 2020, Disney shares are currently trading at $111.07.
Source: Admiral Markets MetaTrader 5 with MT5-SE Add-on DIS Daily Chart (between 27 February 2019 and 30 June 2020). Accessed: 30 June 2020 - Please note: Past performance is not a reliable indicator of future results, or future performance.
Five Reasons to Invest in Disney Stock
Following our fundamental and technical analysis of the Disney Stock, we can deduce five reasons to invest in Disney:
- A highly diversified business model:
- Theme parks
- Films for all audiences
- TV channels
- The Walt Disney Company has shown itself to be a pioneer in new technologies and always leads the pace of new consumer trends
- The acquisition of large franchises that have brought with them large box office revenues. The latest instalment of the Avengers saga, Endgame, surpassed Avatar and Titanic as the highest-grossing film ever
- The introduction to the Chinese market, which has enormous potential, with the opening of the Shanghai Disney resort in 2016
- Its entry into the fast growing market of streaming platforms
Risks of Investing in Disney
As with any financial investment, purchasing Disney shares is not without its risks, which include the following:
- A worsening of the coronavirus pandemic resulting in further delays to theme parks reopening and cinemas operating at full capacity, could seriously deteriorate share value
- If sporting events are suspended again, their flagship sports channel ESPN will be weakened
- The overwhelmingly positive reception of Disney+, which has achieved in a few months the company's goals for an entire year, could stall in consumer incomes are hit
- If the second semi-annual dividend payment of the year is delayed, like the first, this would leave shareholders with no remuneration this year
How Can I Buy Disney Shares?
In order to buy Disney shares on the stock market, you need to open an account with an online broker, such as Admiral Markets UK Ltd. Opening an account with Admiral Markets will give you access to one of the most popular and widely used trading platforms, MetaTrader 5 (MT5). Once you have opened either a demo or live account and downloaded the platform, simply follow these steps:
- Log in to your MetaTrader 5 trading account
- On the Market Watch tab click to add Symbols
- Type DIS into the search bar
- Select the correct symbol (#DIS) and hit enter
- The symbol will appear in the Market Watch list, which you will be able to drag to the right to open the corresponding price chart
- Now right-click on the chart, select Trading and then New Order
- Type in the parameters you want (volume, take profit, stop loss) and hit Buy by Market or Sell by Market
Thanks to MetaTrader 5 you will be able to:
- See the price of Disney shares in real time as well as their historical evolution
- Open a buy or sell position
- Track and manage positions in real time
- Close positions at a profit or loss
If you want to download MetaTrader 5 for free, click on the banner below:
Why Trade in Disney CFDs?
Stock CFDs allow traders to benefit from leverage, a tool with which you can open a position without needing to have the full value of the position in your account. Keep in mind that trading with leverage carries a higher level of risk and is not suitable for all investors. Just as it can multiply your profits, it can also multiply your losses.
You can invest in Disney by means of CFDs through the MetaTrader 5 trading platform. This way you can take advantage of both upward and downward variations in the Disney share price.
To open an account with Admiral Markets you can click on the banner below:
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.