Post of the Day
June 10, 1998

From our
Disney Board


Subject: Re: Why over 100?
Author: Foolishoamy

[ANach Writes]

"I think you will find a bunch of cheerleaders on this board and little else. No one ever talks numbers here. I own Disney and love it as a company too, like everyone else. It's easy to love a company that owns so many great products (as dizneegirl kindly noted). Don't be lazy though and stop short of doing your own analysis, which absolutely MUST include punching some numbers yourself. If you want my opinion, I think Disney is extremely frothy at this price. I don't consider now a buying opportunity for Disney."

"Take your time and learn how to read the numbers before you dive in. The Fool's Workbook is awfully good and explaining how to do this. There is a great chapter in there on valuing companies. I think if you take the time to do this on Disney, you'll find that 113 is an exorbitant amount to pay for this company...."

Hello Anach,

Well you certainly got me to thinking.While I agree with you that one must do their own analysis and make their own decisions I definately DO NOT agree that Disney 's price is "extremly frothy" nor that DIS is only worth $64 a share as you stated in an earlier post to this board. You state that we are all cheerleaders on this board, but (GASP) I have not seen any numbers to back YOUR claims here. Maybe your just a cheerleader of a different suit, or maybe, goiong on the fact that you recommended The Motley Fool Investment Workbook to value DIS and came up with a "value" of $64 you made a mistake and used the "Fool Ratio" to value DIS.

On page 165 of TMFIW under " Proceed with Caution" it states "This tool (the fool ratio) is based on the assumption that a company is a small - to mid-cap and is in a growth business" DIS definately DOES NOT fit this profile. If this is not the case and you still believe that $113 is extremely "frothy" and DIS is only worth $64 a share why on earth are you still LONG on the company and why do you still list it as one of your favorite companies?

By this time I'm sure you are screaming at the top of your lungs " SHOW ME THE NUMBERS" although I'm not a "numbers cruncher" tm I'll give it a try.

I see we can agree on a 20% growth rate. Good. At this rate EPS will grow to $6.42 in 5 years.Now for a worst case scenario let's say that over those 5 years the P/E falls back to DIS's avg. of 27. A P/E of 27 would give us a share price of $174 (all share prices pre-split) for a CAGR of 10%. Not quite the market avg. but not bad for worst case. A more likely story would be the P/E remains where it is at 40. In 5 years our share price would be $256 for a CAGR of around 19%. A number I believe even Warren could appreciate. Why do I believe DIS will continue to recieve this premium valuation? In addition to what dizneegirl listed ...

  • At a P/E of 40 DIS is still 20% below the industry avg of 50.
  • Cruise business- 92% of americans have never taken a cruise, but most of them know Disney. Disney says 50 % of thier bookings are from first time cruisers.
  • The lower share price due to the split ( though I relize this does not affect the Co. value)
O.K. what are the WISE saying (analysts)
Hold ( read sell) - 8
Moderate buy ( read hold) -9
Strong buy (read buy) -8
Worst case -- stong hold - weak buy
More likely -- solid buy
Frankly counselor your case doesn't hold water.

Your witness,

Brian
P.S. I apologise for the length, but it had to be said!


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