The Walt Disney Company (DIS -0.47%) is one of the most recognized brands on Earth, but the stock has disappointed investors. Shares have fallen more than 40% over the past year, and are down almost 10% over the past five years.
But the company looks far different today than five years ago, and there are components of the business that are building momentum underneath the surface. The result might be an eruption during the next bull market -- and I'll show you what could make it happen.
COVID-19 in the rearview mirror
Disney has suffered from some unfortunate timing over the past few years. The company made a massive $71.3 billion acquisition in 2019 of various media assets from Fox, giving it the war chest of content it needed to launch its streaming service, Disney+.
But COVID-19 hit just a year later, and the lockdowns virtually shut down Disney's parks and decimated revenue, which you can see in the quarterly chart below. But now, tourism is roaring back, with lockdowns behind consumers, and Disney's revenue is on the upswing. Revenue through the past six months, ended April 2, was $42 billion, up 32% over 2021.
DIS Revenue (Quarterly) data by YCharts
As luck would have it, the economy seems to be on shaky ground. Consumer sentiment in June dipped to its lowest point on record. Tightening consumer wallets could create more short-term headwinds for Disney, but its parks seem ready for when consumer spending eventually rebounds.
Emerging streaming superpower
Disney+ launched in November 2019 and quickly became a force in the streaming industry, with 87.6 million subscribers as of April 2. When you factor in Disney's services like Hulu and ESPN+, the total grows to 205 million.
For comparison, streaming rival Netflix ended its most recent quarter with 221 million, a total that has taken since 2007 to achieve.
For most consumers' families, Disney+ is a must-have; from superheroes to princesses, Disney's content is arguably unmatched for children and families, and currently costs roughly half of Netflix's standard monthly plan.
It's currently losing money for Disney, with operating losses of $1.5 billion over the past six months. However, management still emphasizes membership growth, with a fiscal 2024 goal of 230 million to 260 million Disney+ subscribers.
Disney will have a ton of leverage at that point to switch on its profitability by raising prices as needed. Investors might give Disney's streaming assets more respect once they begin positively contributing to the bottom line.
A beaten-down stock
Disney's stock is tricky to value because of how much chaos there's been as a result of COVID-19 and the Fox deal. The company is currently trading at a forward price-to-earnings ratio (P/E) of 24, which is technically above the stock's historical average, which has been about 19 over the past decade.
However, look at the chart below to see how much less profitable the business has been in recent years. The P/E ratio is price divided by profits -- so of course, the stock will look more expensive when earnings are depressed.
DIS Normalized Diluted EPS (TTM) data by YCharts
However, investors need to look at how Disney is poised to rebound in the years ahead. Analysts believe that the company's earnings per share (EPS) will grow by an average of 21% annually over the next three to five years.
The stock could quickly become cheaper as Disney's profits retrace to their past form. Disney's dealt with some recent headaches, but long-term investors should look closely so they don't miss the opportunity bubbling underneath the surface.
