Despite Tuesday's sizable rebound, the S&P 500 remains down 1% in March and over 10% year-to-date.
Walt Disney's (DIS 0.89%) stock is down by roughly 30% from its high. Moreover, the stock has been underperforming the S&P 500 over the last year, three-year, five-year, and 10-year time frames. Disney certainly has a slew of short-term challenges, lacking a dividend and still licking its wounds from the COVID-19 pandemic. But the long-term outlook for the media stock has never been brighter.
Here's why Disney is my personal favorite stock to buy today and own for at least 20 years.
Image source: Getty Images.
Disney's domestic parks are back in business
At its core, investing in the stock market is all about finding quality businesses that can grow over decades, or preferably centuries. What got me into investing in the first place when I was about 12 years old was when I first read Peter Lynch's One Up on Wall Street. The book empowers individuals to go out and analyze businesses in a grassroots style. By simply paying attention and understanding a business, Lynch believed (as we do here at the Motley Fool) that regular people can outperform the market.
Disney's blowout Q1 fiscal 2022 report indicated a rebound in its parks and sustained growth in Disney+. Hearing results on an earnings call or reading a transcript is one thing. Seeing the results for yourself is quite another. So I went to Disney World in early March and stayed on the property at the Dolphin Resort (whose statues look more like guppies than dolphins, but that's beside the point). Despite being off-season, Disney World was popping with activity, long lines, and droves of people taking what looked to be long overdue vacations. After going to all four of Disney World's theme parks and continuing to monitor ride ques through the Disney app since I've been back in Texas, I can tell you that traffic at Disney World is booming to the tune of its pre-pandemic beat.
Disney is a healthy business
The rebound in park performance reduces the short-term need for Disney+ to make money. To put Disney's business into perspective, consider that its parks, experiences, and products segment made up just one-third of its Q1 fiscal 2022 revenue but 75% of its profit. Meanwhile, media and entertainment (which includes Disney+) accounted for two-thirds of Disney's revenue but just 25% of its quarterly profit.
Put another way, the parks are highly profitable and are effectively funding Disney+ investments. Despite the lack of profitability from media and entertainment, Disney was still able to make $1.06 in adjusted earnings per diluted share in Q1 fiscal 2022 -- a sign that it can afford to take risks on Disney+ and let it grow over the long term.
A big-picture look at valuation
Even if Disney+ faces lower growth and strained profitability in the years to come, Disney is still a great buy now. Between 2015 and the beginning of 2019, Disney stock traded chiefly in a range from $90 per share to around $115 per share -- underperforming the market during that time frame. Disney+ was released in November 2019.
Disney stock passed $150 per share in 2019, reached a peak of nearly $199 per share in 2021, then fell to its current price of around $134 per share. If Q1 fiscal 2022 is any indication of the quarters to come, then the parks, experiences, and products segment could very well post all-time high results in fiscal 2022. Pair this rebound with the added growth of Disney+, and it's hard to see how Disney stock could only be worth a little more than its pre-Disney+ value.
Be wary of emotional impulses
No matter how much we like to discuss the long-term investment thesis of a stock, underestimating the emotional side of investing is a mistake. The temptation to sell when your screen is painted in a sea of red that seems to just get worse as the weeks go by is a powerful force.
But by owning quality businesses through thick and thin, you can give your portfolio the time horizon needed to capture long-term gains. This task is easier if you own businesses that you can monitor firsthand. In a bear market, that added layer of conviction can make all the difference.
