The stock is currently trading at a forward P/E of 16 and a EV/EBITDA valuation of 10.68. These ratios do not appear to be lofty, but they also do not suggest that Disney is significantly undervalued at current levels.
Nevertheless, there should be plenty of upside in the stock if the company can continue to execute going forward. Disney possesses one of the preeminent brands in the world and has a strong moat around many of its businesses, from media networks, parks and resorts to movies and interactive entertainment.
What also catches the eye about the stock is that it has absolutely trounced the S&P 500 over any significant time frame. For example, over the last 10 years shares have surged 250 percent versus a 75 percent gain for the S&P. Over the last five years, the stock is up 154 percent versus a 64 percent gain for the S&P.
It could be argued that, all things considered, Disney's risk/reward profile is significantly more attractive than the S&P 500 basket. With a beta of 1.34, the stock is moderately riskier than the broader market, but investors will want to take into account the company's past performance, its brand, its market capitalization, its diversified business lines and the fact that Disney is about as blue of a blue-chip stock as it gets.
Recent Performance
Year-to-date, Disney has largely followed the ups and downs in the S&P. Nevertheless, on both the one-year and year-to-date chart, the stock has significantly underperformed. Over the last 52-weeks, the S&P is up a little less than 2 percent, while Disney has shed more than 16 percent. Year-to-date, the stock is down around 5 percent compared to a gain for the S&P of just under 6 percent. By any measure, this is an anomaly, and a bullish thesis only requires an investor to believe the current relationship between the stock and the broader market will not hold going forward.
Right now, the stock is trading above an important support level in the low $90/high $80 range, which represents a near-term bottom in the shares. Investors interested in owning Disney at current levels may want to watch this level on the downside and exit the stock if it is breached. On the upside, Disney is approaching the $100 level, and if performance picks up, this may be the last time that the shares trade below this key psychological level.
At time of writing, Disney shares were down 0.71 percent on the day, trading at $99.44.
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