Walking a mile in the shoes of Walt Disney (DIS -0.87%) CEO Bob Chapek isn't an easy hike. The shoes might be just a little more than two years old, but they're already pretty scuffed up. They don't seem to fit just right, the laces are knotted, and don't get me started about the arch support. There isn't a lot of support.
Chapek was thrown into the corner office at a tumultuous time. Former CEO Bob Iger handed him the keys to the kingdom in late February of 2020. Disney would shutter its domestic theme parks two weeks later -- for four months on one coast and more than a year on the other -- in the wake of the COVID-19 crisis. The same media giant that had put out the previous year's six highest-grossing films would face an operating climate in which consumers weren't comfortable going back to the local multiplex.
Now that folks are ready to head out and international travel restrictions have eased, the global economy itself has tensed up. There isn't a lot of discretionary income left after paying rising prices on the essentials. Disney stock, which soared early in Chapek's tenure, has plummeted, now down 25% since he was tapped as the media empire's new helmsman.
With Disney stock now just below $100, is it ready to finally bounce back? Could this be the last chance to grab a piece of the House of Mouse in the double digits? Let's take a closer look.
Image source: Disney.
It's a small world after all
Disney's initial rise during Chapek's time at the top was due to the meteoric rise of Disney+. Since its launch in late 2019, the streaming video service has gone on to top 152 million subscribers in less than three years. The platform itself isn't expected to turn a profit for another two years, but investors were willing to wait until fiscal 2024 for positive cash flow from Disney+ given its unprecedented land grab worldwide.
With folks hunkering down at home early in the pandemic, it was the future of Disney+ -- and the steady beat of its linear media networks -- that made investors overlook the shortfalls at its theme parks and theatrical distribution business.
The irony here is that Disney is running on more cylinders these days, even if its stock is clearly out of favor. It hasn't returned to prepandemic form at the multiplex, but it has some of this year's most anticipated releases premiering in the next two months. Disney+ continues to explode in popularity, and the company's linear networks are still inching in the right direction.
Also, Stateside theme parks are already ahead of where they were in 2019, something that has to be infuriating to many of Chapek's critics as they watch visitors to the gated attractions play along with the rollout of premium add-ons and price hikes.
Is Disney stock finally too cheap to pass up? We're now two weeks into fiscal 2023, and Disney is trading for less than 17 times this new year's analyst profit targets. It's a reasonable multiple that becomes even more compelling when you consider that the company is still absorbing losses at Disney+ as the streaming service expands. Look out another two fiscal years, and the multiple drops to 15 and less than 13, respectively.
A lot can go wrong between now and then. Naturally, all near-term bets are off on this growth trajectory if the global economy continues to unravel on the heels of political and financial instability.
The flip side here is that things can also get better. Once Disney+ turns the corner of profitability, the ceiling could become a sunroof. And Disney's U.S. theme parks are already generating 40% more revenue per guest than they were before the pandemic. What happens if Disney opens the spigot to increase supply and demand lives up to its end of the bargain?
There is a lot to like about Disney at its current stock price. Is this really your last chance to buy shares under $100? Hopefully, you know that Wall Street doesn't deal in princess stories. There will be ups and downs, and the worst-performing Dow 30 component in 2021 isn't going to be immune if the market and the planet sneeze again. The Prince Charming of entertainment stocks could do everything right, and the shares could still buckle below $100 again. The opportunity at current prices is tempting, but fairy-tale endings are never guaranteed.
