Has Disney Become Overvalued?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

The Dow Jones Industrial Average (DJINDICES: ^DJI  ) has fallen 0.82% late in trading for one of the bigger daily losses in recent memory. There's no major economic data driving stocks lower, but there are lingering questions about when the Federal Reserve will begin drawing down its $85 billion-per-month bond-buying program, and today investors took a pessimistic view.

One of the biggest losers today is Disney (NYSE: DIS  ) , which has fallen 1.6% today. Analysts at B. Riley downgraded the stock, saying that shares are fully valued. But has Disney reached full value or can investors still make money on Disney's stock?

Where does Disney stand?
One reason to take a look at Disney's value is the great performance of the stock this year. The Dow Jones Industrial Average has gained an impressive 24%, but Disney is up a whopping 40.2% this year.

^DJITR Chart

^DJITR data by YCharts.

One way to assess Disney's value is to look at its P/E ratio and its growth rate. As you can see below, its P/E ratio isn't as low as it was a year ago, but a ratio of 20.6 isn't a new high by any stretch. On the same token, growth is a steady 7.3%, which is outpacing global economic growth.

DIS P/E Ratio (TTM) Chart

DIS P/E Ratio (TTM) data by YCharts.

You could make an argument that Disney is overvalued, but this has never been a cheap stock. In fact, I'd argue that the stock would need to be 50% higher to be overvalued, based on historical ratios.

What does the future hold?
The other reason I wouldn't sell Disney so easily is how well the company is positioned for the future. With ESPN, Pixar, Marvel, and Lucasfilm, Disney can produce top-notch content going forward. Right now, that means high licensing revenue and solid network revenues, but it also opens up options for the future.

Streaming has become a big player in media, and Disney has the option of licensing its content or going directly to customers. The bottom line is that as a content producer, Disney is in a great strategic position.

Foolish bottom line
Disney isn't cheap, but it's also not a terribly expensive stock by historical standards. With its strong strategic position in media, I still think this is a company to own, not abandon, right now. Today's drop just gives a little discount to investors.

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Related Tickers

4/15/2014 4:34 PM
^DJI $16262.56 Up +89.32 +0.55%
DOW JONES INDUSTRI… CAPS Rating: No stars
DIS $77.66 Up +0.04 +0.05%
Walt Disney CAPS Rating: *****

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