The stock of The Walt Disney Co (NYSE:DIS, 30-year Financials) is believed 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 $177.04 per share and the market cap of $321.7 billion, The Walt Disney Co stock shows every sign of being significantly overvalued. GF Value for The Walt Disney Co is shown in the chart below.
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.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. The Walt Disney Co has a cash-to-debt ratio of 0.28, which which ranks worse than 74% 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:
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 $58.3 billion and loss of $2.5 a share. Its operating margin of 2.23% 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:
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 85% of the companies in the industry of Media - Diversified.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, The Walt Disney Co’s return on invested capital is 0.70, and its cost of capital is 8.00. The historical ROIC vs WACC comparison of The Walt Disney Co is shown below:
In summary, The stock of The Walt Disney Co (NYSE:DIS, 30-year Financials) is believed to be significantly overvalued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 85% 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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