Commission-free trading app Robinhood is a heat map of what is popular among retail investors in the stock market. And it's no surprise that Walt Disney (DIS -1.23%) ranks among the top 100 most widely held companies on the platform, considering its catalysts for long-term success.
The entertainment giant has seen its shares soar roughly 20% over the last 12 months as it recovers from the impacts of the coronavirus pandemic, while implementing its new streaming-focused strategy. Let's explore the reasons why Disney is my top Robinhood stock to buy right now.
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Why Disney?
In December, Disney premiered the season finale of its sci-fi series, The Mandalorian, on Disney+. Nielsen's chart estimates the program was the most streamed show between Dec. 14 and Dec. 20, beating out rival Netflix for the first time. This milestone demonstrates the viability of Disney's new streaming strategy, which is evolving into an industry leader because of its edge in original content.
The Mandalorian, which takes place in the Star Wars universe, is a perfect example of Disney's ability to monetize its treasure trove of intellectual property. Unlike show concepts built from scratch, the Mandalorian tapped into an already established Star Wars fanbase, potentially giving it an edge in viewership. Disney boasts other high-profile assets, including the Marvel Cinematic Universe and Pixar.
Netflix still holds the lead in the streaming wars, but Disney+ is quickly gaining ground. Disney's platform now boasts 87 million subscribers and expects to have 230 million to 260 million by 2024. To put that guidance in perspective, Netflix boasts 195 million subscribers right now and generated a net income of $2.8 billion in the trailing 12-month period.
Compelling valuation
Disney boasts a price-to-sales (P/S) multiple of 4.7 on a 12-month revenue of $65.4 billion. While that multiple doesn't mean much without factoring in profits (and Disney currently isn't profitable), it does suggest that Disney offers better value compared to rivals in the amusement park and streaming business spaces. Netflix and Six Flags (SIX -2.35%) report P/S ratios of 9.6 and 6.1, respectively.
Disney is also making impressive progress in recovering from the coronavirus pandemic, which is still a significant headwind. Fourth quarter revenue fell 23% to $14.7 billion because of 52% and 61% declines in the studio entertainment and amusement park businesses, respectively. But that is a substantial improvement from the third quarter when amusement park revenue fell 85% against the prior-year period.
Disney's studio entertainment business is recovering much slower, but this seems to be by design as the company pivots to a direct-to-consumer strategy. In October, the company announced plans to reorganize its media business around streaming. And management has released several high-profile studio creations on Disney+ while theater attendance remains subdued because of the pandemic.
Disney stock is a buy
Investors shouldn't let near-term challenges (especially those induced by the coronavirus pandemic) distract them from long-term opportunities. Disney stock is a compelling investment because of its rapidly growing streaming business and the slow but steady recovery in its amusement parks. The company's reasonable valuation adds icing to the cake, making it a welcome addition to your portfolio.
