The Walt Disney Company (DIS -0.93%) relies heavily on bringing large groups of people together in person to make sales and profit. It's no surprise, then, that a devastating pandemic hurt the business. However, The House of Mouse is bouncing back stronger than ever, and investors would be wise to take notice. Folks are unleashing pent-up demand for activities outside the home after being cooped up inside for more than a year.
Disney is in an excellent position to benefit from that trend over several years. What's more, the broad market sell-off has made Disney's stock available at a bargain price. Let's look closer at why Disney is my favorite stock to buy in June.
Image source: Getty Images.
Disney's theme parks are bouncing back
Smartly, Disney's management did not remain idle during the initial stages of the pandemic when many of its lucrative businesses were forced to close to the public. Most significantly, it made enhancements to its theme parks business, improving potential profitability. Features like a digital reservation system will allow it to manage attendance to optimize revenue. For instance, if it notices a surprisingly low reservation total for an upcoming weekend, it could run promotions or lower prices to encourage visitation.
Additionally, Disney implemented mobile ordering at the parks and contactless check-ins at its hotels. Guests can check in without seeing a receptionist, and park visitors can order food without visiting a cashier. These improve the guest experience and boost profitability by reducing staffing levels. Disney didn't stop there. The company introduced a new premium feature at the theme parks where visitors can pay for the right to skip lines. Long waits have long been a common guest complaint. Now folks who strongly dislike waiting can pay to reduce the inconvenience.
It's all working together to bolster Disney's theme park profits. In the most recent six months, Disney's revenue and operating income from the theme park segment are outpacing 2019 -- the last year before the outbreak -- and all this while the pandemic still continues. That suggests that as the threat of COVID-19 diminishes, the theme parks could be more profitable than ever. Indeed, management noted that guest spending in its most recent quarter ended on April 2 was 40% higher than at the same time in 2019.
The streaming segment is on a growth track
The pandemic also proved helpful in boosting Disney's streaming services. Disney+, in particular, has grown to reach 138 million subs. When the company launches an ad-supported version of Disney+ in the U.S. later this year and internationally next year, the lower entry price could attract millions more. Management has repeatedly reiterated that the service could reach between 230 million and 260 million subscribers by 2024. At that scale, it expects the service to be profitable. Disney is home to some of the most iconic content franchises, including Star Wars, Marvel, Pixar, etc. It's reasonable to assume it will have success in expanding its streaming content services worldwide.
A favorable valuation
DIS PS Ratio data by YCharts
Since the pandemic's onset, Disney's earnings and free cash flow have been distorted. However, looking at its price-to-sales ratio, Disney has scarcely been cheaper in the last five years. Disney's businesses that were devastated because of the pandemic are quickly bouncing back. Meanwhile, it has gained solid momentum in developing its streaming services. Finally, the iconic business can be bought at a bargain price. Disney is my favorite stock to buy in June for all these reasons.
