What began as a cartoon studio has ballooned into a nearly $300 billion company that includes theme parks, TV networks and film studios.
Mickey Mouse first appeared on movie screens nearly 100 years ago and that little mouse remains the face of a huge media and entertainment company: The Walt Disney Company. What began as a cartoon studio has ballooned into a nearly $300 billion company that includes theme parks, TV networks and film studios. Thanks to those mouse ears and that unmistakable font, Disney is one of the most recognizable brands in the world — and a popular pick among Robinhood customers.
The Burbank, California-based company is a giant in the entertainment industry and has a long history of buying up other companies. Most recently, in 2019, The Walt Disney Co. completed its acquisition of 21st Century Fox, which included various film and TV businesses and a stake in Hulu. In addition to the theme parks that may immediately come to mind, Disney also owns media networks (ESPN, ABC and the Disney channels), content studios (Pixar, LucasFilm, Marvel Studios and Walt Disney Studios) and streaming services (Disney+ and ESPN+).
While Disneyland dubs itself “the happiest place on earth,” Disney’s investors haven’t been the happiest on Wall Street in recent years. Disney stock has delivered total returns (which assume dividends are reinvested) of approximately 41% in the past five years, less than half the amount of the S&P 500 Index’s 108% returns in that time. In addition to its lackluster performance in the stock market, investing in Disney comes at a price: The stock is more than three times as expensive as that benchmark index based on its price-to-earnings ratio, which is a key measure of valuation.
And yet, just as tourists flock to its theme parks, investors also are drawn to Disney’s stock. The company launched its initial public offering (IPO) in 1957 at $13.88 a share, and Disney’s share price has surged more than tenfold since then. The company has completed several stock splits, which has helped keep its price within reach for many investors, and the stock has traded in the range of $100 to $200 for the past five years. Shareholders also enjoyed a healthy semi-annual dividend payment, though Disney announced in May 2020 it was forgoing dividends as a result of the business impact from the Covid-19 pandemic — and it has yet to reinstate dividends. Here’s how to decide if it will pay off to become a Disney shareholder.
Disney stock (DIS) fundamentals
Disney has an enduring appeal on Wall Street, and it manages to compete for attention with younger and flashier stocks like Apple, Tesla and Amazon. While Disney isn’t among the largest components of the S&P 500 — it’s currently hanging around the Top 20 spot — it is considered a blue-chip stock. That’s because, since 1991, Disney’s stock has been a member of the smaller and more exclusive Dow Jones Industrial Average. As a result, the company is closely watched by shareholders and non-shareholders alike.
Disney trades under the ticker DIS on the New York Stock Exchange, and the stock is part of the communication services sector alongside the likes of Netflix and ViacomCBS. A majority of the company’s revenue — currently 75% — comes from its Disney media and entertainment distribution business. The balance of the company’s revenue is more in-line with the consumer discretionary sector because it includes Disney theme parks, Disney cruise line (and other experiences) and products.
Even if you don’t have a pair of mouse ears hanging around waiting for your next trip to Disneyland or Walt Disney World, you may want to buy stock to get exposure to its ever growing media business. Before doing so, however, it’s important to dig into the details of the company’s financials. Start by reviewing Disney’s latest earnings reports, which you can easily access in the investor relations section of the company’s website or via documents that all publicly-traded companies are required to file with the U.S. Securities and Exchange Commission (SEC). These documents will provide the details about Disney’s business, including the aforementioned breakdown of revenue from various business segments.
Once you have a better understanding of Disney’s business, it’s important to consider whether the stock is a good investment for your portfolio. To better understand what causes Disney’s share price to move higher or lower on any given trading day, you should start following news about Disney, its competitors and the broader entertainment industry from major financial publications. In addition, enter the company’s ticker symbol (DIS) on a variety of financial websites to find data about the stock’s past performance data, valuation and its price-to-earnings ratio, among other information. On these websites, you may also access reports written by Wall Street analysts that detail information about the company’s business and their “buy,” “sell” or “hold” recommendations for the stock.
Disney’s latest financial results
Disney recently released results for its fiscal first quarter which ended in January, and the company reported total revenue of $21.82 billion, a 34% increase from a year ago, and adjusted earnings of $1.06 per share. Both revenue and earnings beat the estimates by Wall Street analysts.
Disney’s streaming platform Disney+ gained 11.8 million subscribers for the quarter, also beating expectations. The new users helped Disney+ hit 130 million subscribers, up from 118 million in the previous quarter. Meanwhile, the company’s rival Netflix reported slowing subscriber growth last quarter.
Although the Covid-19 pandemic severely impacted Disney as lockdowns kept people at home, revenues from Disney’s parks, experiences and products business segment hit $7.2 billion, twice as much as a year ago. The company’s stock price jumped around 8% in extended trading following the earnings announcement.
How Disney stock fits into your portfolio
Thanks to all of those stock splits, Disney shares remain fairly affordable for many investors, including beginners. However, the stock currently has two strikes against it for some investors: On a valuation basis, its price-to-earnings ratio makes the stock at least five times more expensive relative to the major benchmarks and the company no longer pays a dividend. If these are a dealbreaker for you, here’s some good news: You may already be invested in Disney if you own any index funds that track either the S&P 500 or the Dow average. What’s more, Disney is among the top 15 holdings in nearly 50 different exchange-traded funds (ETFs), including the Fidelity MSCI Communication Services Index ETF (ticker: FCOM) and the Vanguard Communication Services ETF (ticker: VOX).
If you do want to become a shareholder in Walt Disney Co., you should consider how this stock will fit into your broader portfolio. If you already have exposure to Disney, adding more shares to your portfolio could put you at a higher risk because this stock is slightly more volatile than the broader market and the stock’s performance has been choppy in recent years. In addition, you may miss out on the diversification of investing in a variety of other stocks, which is why beginners should consult with a financial advisor before making any major changes to your portfolio.
Finally, remember that investing in individual stocks means you are at the whim of the company’s business prospects. Disney shareholders learned this lesson firsthand during the Covid-19 pandemic. And while Disney will remain attractive to investors because it’s a blue-chip stock, its past performance has varied and may not be indicative of future results. Disney’s stock is down 16% over the last year while the S&P 500 is up around 12%
How to buy Disney stock in a brokerage account
If you have an online brokerage account, you can become a Disney shareholder in a matter of minutes. There are two main ways that you can buy Disney stock: Place a market order, which will be executed as soon as possible at the current market price, or place a limit order, which lets you specify the maximum price you are willing to pay. In addition, you can opt for those aforementioned alternative routes for adding some Disney exposure to your portfolio by buying a mutual fund or ETF that has a large exposure to Disney. And you may be able to buy fractional shares of Disney stock through your brokerage firm.
How many Disney shares should you buy? The answer will likely depend on how much exposure you already have to this one individual stock, how much money you have to invest and how bullish you are about the stock. It’s important to carefully consider your motivation for investing in Walt Disney Company, just as you would with any individual stock, because your love of the company could cloud your assessment of its investment prospects.
Experts generally recommend that you should limit exposure to any one individual stock to a 5% stake, at the most, and focus instead on building a diversified portfolio. Doing so will ensure that your portfolio’s performance will benefit from a wide variety of assets. If you’re investing in individual stocks, about 20 different stocks can make you broadly diversified, along with investments in bonds, funds and alternative assets. It’s also important to make sure that the money you want to invest in stocks doesn’t have a better, short-term purpose, like paying off high-interest debt (such as credit cards) or building up an emergency fund that could cover at least three months of expenses.
Finally, remember that even some of the oldest and most recognizable companies go through ups and downs, as Disney has in the past two years. The company is still recovering from the toll that the pandemic took on its business, and some consumer habits (like going to the movies, theme parks and on cruises) could take a long time to fully recover. If you buy stock — be it Disney or any other company — you should do so with a long-term investment in mind.
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