Over the past 60-plus years, The Walt Disney Company (NYSE:DIS) has been one of the best-performing stocks in the world. Powered initially by the breakout success of its first feature-length animated film, Snow White and the Seven Dwarfs, Disney's value has grown at an astounding CAGR (compound annual growth rate) of nearly 15% since going public on the New York Stock Exchange in 1957. With that type of return, it's no wonder investors are on the hunt for the next Disney.
Our Foolish investors, however, think that the next Disney-like growth stock may actually come from a diverse range of industries, including (but not limited to) entertainment. We asked three of our investors to profile a company that might be able to follow in Disney's footsteps from a growth standpoint. They picked small-cap biotech Geron Corp. (NASDAQ:GERN), amusement park operator Cedar Fair, L.P. (NYSE:FUN), and Taser and body camera specialist Axon Enterprise (NASDAQ:AAXN).
The start of something special
George Budwell (Geron Corp.): Geron's putative Snow White, if you will, is an experimental anti-cancer drug called imetelstat. Like Disney's first feature-length animated film that proved to be a transformative event for the entertainment giant, imetelstat may also turn out to be game-changer for its manufacturer.
The backstory is that Geron signed a global licensing deal with Johnson & Johnson's (NYSE:JNJ) biotech wing, known as Janssen, to develop imetelstat for two myeloid-based malignancies (myelofibrosis and myelodysplastic syndromes) in late 2014. Although the drug's march through the clinical trialing process has been painfully slow since then, imetelstat is nearing a critical juncture in its development that could be a pivotal moment in Geron's history. Specifically, J&J and Janssen are expected to conduct a third internal data review for imetelstat's midstage myelofibrosis study by the end of the first quarter.
While the primary analysis for this study isn't scheduled to occur until either a pre-specific number of deaths have occurred, or the study rolls into Q3 without hitting this cutoff point, this upcoming internal review should provide significant insight into whether the drug is providing a meaningful clinical benefit to patients. In fact, this event may lead to J&J finally pulling the trigger on the long-awaited continuation decision for imetelstat's overall clinical development program.
On the commercial side of the equation, the reason this stock is so intriguing is because imetelstat has the potential to be the type of cash cow for Geron that would allow it to diversify its pipeline through mergers and acquisitions, and eventually grow into a multiproduct oncology company in the coming decades. Of course, Geron would have to forgo a likely buyout offer from J&J in the meantime. But the point remains the same: Geron might be about to emulate Disney's trek from a small company on the verge of bankruptcy to a titan of its industry in the next half century or so.
Focusing on the parks
Reuben Gregg Brewer (Cedar Fair, L.P.): Cedar Fair is one the United States' largest amusement park operators, with a portfolio of 11 theme parks, three water parks, and five hotels. Its largely regional and seasonal parks aren't on the same level as the massive year-round parks run by Disney, but they do offer investors a pure play on one of the best-performing units within the giant entertainment conglomerate.
To put a number on that, revenues were down at Disney's at media, studio, and consumer products divisions in fiscal 2017, but up 8% at its parks and resorts business. Cedar Fair's adjusted revenue (pulling out the impact of a water park that closed after the 2016 season) were up slightly through the first nine months of 2017 despite lost park days due to extreme weather events during peak attendance periods.
To be honest, there's a big difference between Cedar Fair and Disney's parks division. However, Cedar Fair doesn't have to deal with the headwinds facing some of Disney's most important media assets, like the subscriber losses at ESPN. And Cedar Fair has been working to increase the year-round attraction of its business. That includes building an indoor water park and a sports facility, and themed events to draw crowds and extend its operating period past the summer months, such as Halloween "scare" events and Winterfest.
Some of these programs are still being rolled out across the business, while others make use of the ample property the partnership owns adjacent to its parks. In other words, expect Cedar Fair to keep pushing attendance higher by spending in smart ways -- exactly what Disney has done with its park business since its IPO. And while Cedar Fair does that, investors can collect its robust 5.5% yield.
On target for future growth
Rich Duprey (Axon Enterprise): Some 60 years ago, Disney understood the core of its business was movies, but was supported by a portfolio of opportunities that held the promise of future growth that could feed off one another: TV shows, comic books, magazines, and its Disneyland theme park, which opened in 1955.
That same sort of fundamental business surrounded by satellites of opportunity today exists in Axon Enterprise, whose foundational premise is its core Taser stun gun but has ancillary supporting businesses in body cameras and evidence management databases. In a market demanding less-than-lethal weaponry for law enforcement, but also the ability to hold them accountable for their actions while ensuring all parties are protected in a police interaction, Axon Enterprise is at the nexus of all three.
The Taser remains Axon's primary revenue generator, and though it is still able to sell large numbers of upgraded weapons to law enforcement, it has reached something of a saturation point with them. Virtually all large cities carry them. The next stage is broad adoption of body cameras to record every interaction between police and public. There are mandates for body cams in many cities, and it's a competitive space, though Axon is emerging as a leader.
The question is what to do with all that data that is generated by those cameras, as they must be held for evidentiary purposes for a period of time. That's where Axon's Evidence.com evidence management system comes in, as it can store, sort, and select specific data for recall at need. And once it's embedded in a department, its "stickiness" makes it difficult to opt out afterwards.
Axon Enterprise may be a pricey stock at the moment, but six decades down the road, it will likely appear to be a cheap price to have paid.