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The Walt Disney Co Stock Appears To Be Significantly Overvalued

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GF Value
Jun 05, 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 $177.18 per share and the market cap of $321.9 billion, The Walt Disney Co stock appears to be significantly overvalued. GF Value for The Walt Disney Co is shown in the chart below.

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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 8.60% annually over the next three to five years.

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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. The Walt Disney Co has a cash-to-debt ratio of 0.28, which ranks worse than 74% of the companies in the industry of Media - Diversified. Based on this, GuruFocus ranks The Walt Disney Co's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of The Walt Disney Co over the past years:

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Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. The Walt Disney Co has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $58.3 billion and loss of $2.5 a share. Its operating margin is 2.23%, which ranks in the middle range of the companies in the industry of Media - Diversified. Overall, the profitability of The Walt Disney Co is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of The Walt Disney Co over the past years:

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Growth is probably one of the most important factors 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. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. The Walt Disney Co's 3-year average revenue growth rate is in the middle range of the companies in the industry of Media - Diversified. The Walt Disney Co's 3-year average EBITDA growth rate is -35.5%, which ranks worse than 86% 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 0.70, and its cost of capital is 8.16. The historical ROIC vs WACC comparison of The Walt Disney Co is shown below:

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Overall, The Walt Disney Co (NYSE:DIS, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 86% 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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