Source: Disney.
Long-term investors have absolutely nothing to complain about the performance of Disney (DIS 0.16%) stock. The entertainment giant has seen its share price soar through the roof in recent years, as the success of its multimedia empire has fed on itself, and led to ever more lucrative cross-marketing opportunities for the company.
When the stock market started to sell off in September and early October, Disney suffered a substantial short-term blow; but in the ensuing recovery, Disney has climbed more than 10% in a single month. Now, investors want to know if the downside volatility for Disney is over -- or whether they should worry about a longer-term pause to the stock's impressive run. Let's take a closer look at Disney to find out what happened to encourage investors and bid the stock back to new all-time record highs.
Why Disney is climbing higher again
The obvious place to look for Disney's resurgence is its fiscal fourth-quarter earnings report. Indeed, Disney posted solid results to close out fiscal 2014, with overall sales gaining 7%, and leading to an 8% increase in net income. Disney showed strength nearly across the board, with a 5% sales jump in the company's key media-networks segment, 7% revenue gains at its parks and resorts, and successful releases in its studio entertainment division helped drive sales of related merchandise.
Yet, for the most part, Disney had already recovered its lost ground before its early November earnings release. Indeed, the day of the release marked Disney's high-water mark to date, with investors regaining confidence without even seeing the company's latest results.
What seems like the most likely reason for Disney's bouncing back so quickly is that it has a compelling fundamental long-term strategy that buy-and-hold investors can latch onto even during uncertain times for the stock market. Not only does it produce the content people want to watch, but it also takes as many bites at the profit apple as possible in order to make the most of each opportunity.
Source: Marvel.
Disney has worked hard to defend its position as a primary provider of content. Even as more consumers choose to give up their cable television services in favor of other video sources, Disney has worked closely with the choices that cord-cutters turn to as alternatives. With collaboration with DISH Network (DISH), Netflix (NFLX -9.09%), and others, Disney recognizes the value of its content, and is doing everything in its power to maximize its profit-generating value over the long haul.
Looking at the long run at Disney
At the same time, though, Disney's long-term potential seems almost limitless. Purchases of Pixar, Marvel, and Lucasfilm promise multiple installments in several different content universes, and will appeal to just about every single generation of moviegoers and television viewers, Disney stands to find the best way possible to reach every segment of its audience. So far, Disney has only started to pick at the lowest-hanging fruit from some of its most valuable franchises, and future plans to build out new contributions from Disney's acquisitions, and place them strategically throughout the multimedia empire, should bring in even more profits down the road. That's a big part of the reason why the stock is up almost 30% during the past year.
Source: Disney.
During the next year, Disney can expect a lot of attention for the long-awaited seventh installment of the Star Wars movie series. Middle-aged moviegoers got their first taste of the series more than 35 years ago; therefore, the success of that one single movie could single handedly determine whether Disney's purchase of Lucasfilm was a smart move. At the same time, though, Marvel will keep delivering new content in other areas, and the company is poised to keep moving forward with its other projects, as well.
Does Disney belong in your portfolio?
For traders, Disney's dip and subsequent bounce were opportunities for short-term profits. But Disney's true value is in its long-term value proposition for shareholders. Despite valuations that don't appear cheap at first glance, Disney has substantial growth potential that could take decades to realize fully, and that makes taking advantage of brief declines in its share price important to maximize your returns.
