The Walt Disney Co Stock Shows Every Sign Of Being Significantly Overvalued

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GF Value
Mar 29, 2021
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The stock of The Walt Disney Co (NYSE:DIS, 30-year Financials) appears to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $185.92 per share and the market cap of $337.5 billion, The Walt Disney Co stock is believed to be significantly overvalued. GF Value for The Walt Disney Co is shown in the chart below.

The Walt Disney Co GF Value Chart

Because The Walt Disney Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 1.2% over the past three years and is estimated to grow 8.88% annually over the next three to five years.

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It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. The Walt Disney Co has a cash-to-debt ratio of 0.29, which is worse than 73% of the companies in the industry of Media - Diversified. The overall financial strength of The Walt Disney Co is 4 out of 10, which indicates that the financial strength of The Walt Disney Co is poor. This is the debt and cash of The Walt Disney Co over the past years:

debt and cash

Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. The Walt Disney Co has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $60.7 billion and loss of $2.74 a share. Its operating margin of 2.02% in the middle range of the companies in the industry of Media - Diversified. Overall, GuruFocus ranks The Walt Disney Co's profitability as fair. This is the revenue and net income of The Walt Disney Co over the past years:

Revnue and Net Income

Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of The Walt Disney Co is 1.2%, which ranks in the middle range of the companies in the industry of Media - Diversified. The 3-year average EBITDA growth rate is -35.5%, which ranks worse than 88% of the companies in the industry of Media - Diversified.

Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, The Walt Disney Co's return on invested capital is 0.71, and its cost of capital is 8.49. The historical ROIC vs WACC comparison of The Walt Disney Co is shown below:

ROIC vs WACC

To conclude, the stock of The Walt Disney Co (NYSE:DIS, 30-year Financials) shows every sign of being significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 88% of the companies in the industry of Media - Diversified. To learn more about The Walt Disney Co stock, you can check out its 30-year Financials here.

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