Investment Alert: Buy Disney (DIS) Under $90
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
Disney has been plagued with controversy recently. Whether it’s butting heads with Governor Ron DeSantis or men dressed up as princess characters, the company has been making headlines for reasons other than its financials. The negative headlines have corresponded to poor sentiment and the share price has fallen quite dramatically from over $120 per share last summer to under $90 per share this summer.
In that price decline, we believe there is opportunity, so let’s discuss it.
- Disney is suffering from poor sentiment and its share price has been hovering around long-term support
- The reward-to-risk favors a bullish view from a technical and fundamental perspective.
- Financially, Disney has upside potential to $117 per share, the median analysts consensus price.
The Bullish Technical Case
While poor sentiment is a reason to sniff around Disney from a contrarian perspective, the technical chart offers a more compelling reason to be optimistic.
As you can see in the Disney stock chart below, the share price is hovering around a long-term support level.
The way to interpret the chart is to view the opportunity from a reward to risk perspective. The stock now has substantial upside potential and limited downside risk, assuming a stop loss is triggered at the long-term support area of $85 per share.
And that leads us to the question, what could turn the stock around and catalyze it to move higher?
At some point, share price declines so far that a company becomes attractive to value investors. Take Meta, for example, when it traded under $100 per share and was written off by many who suggested the social media giant had made a catastrophic business model error by investing in the metaverse. Since then the stock is up well over 100%.
Similarly, we think investors who have an eye for a deal will spot value in Disney now. Will it go up 100%? We’re not confident that it will run that far but when performing a discounted cash flow forecast analysis it was clear that $117 per share was a price target that was within reach. That figure we calculated using a 5-year discounted cash flow forecast analysis and it just so happened to line up precisely with the median analysts forecast too.
Disney is still an absolute juggernaut generating $82 billion in revenue last year, up 22% year over year, and produces enormous profits annually that makes its price-to-earnings ratio attractive relative to future growth.
All in all, Disney is a compelling buy at these levels. Should the share price fall below $85 per share, the investment thesis would be rendered invalid. But the risk now is just a few dollars while the upside reward is much higher, all the way to $117 per share.