Walt Disney (DIS -0.55%) is an iconic name with worldwide recognition value. It owns a powerful collection of entertainment properties. And yet the stock has fallen by over 45% since peaking in early 2021. The shares are down by 32% in 2022 alone. However, there's a lot to unpack here before you hit the buy button.

This makes sense, that doesn't

Stock markets are often considered rational, but that's really when you look at the long term. Over short periods of time, Wall Street can make some pretty strange choices.

For example, when the coronavirus pandemic first hit in 2020, Disney's stock fell sharply. That was pretty logical, given that its amusement parks were shut down and the movies it made couldn't be released to theaters shut down by government fiat. Not shockingly, earnings were ugly. It got so bad that Disney eliminated its dividend.

Person on scooter with rocket strapped to their back, rolling through office.

Image source: Getty Images.

And then something unusual happened. The stock took off like a rocket ship, more than doubling in value between its pandemic lows and its early 2021 highs. The big story was the company's streaming business, which latched onto the digital theme driving many stocks as people worked from home and social distanced from each other.

The company did achieve notable success as it sought to compete with streaming giants like Netflix and Amazon. However, Disney's financial results didn't recover back to pre-pandemic levels, so the price spike appeared more emotionally driven than fundamentally sound.

Not surprisingly, as the euphoria wore off, and things like financial results started to gain more sway, the stock started to sell off again. Now, the shares are back to about where they were when the pandemic first hit. Is that a second chance to buy this iconic name, or just a reflection of reality?

Positive and negative signs

As noted, Disney's earnings are not back to pre-pandemic levels. So while the entertainment giant's business is recovering, it has not fully recovered. There are some notable reasons for this, including the fact that people have shifted the way they consume media. Cable television and movie theaters are both facing pressures and are core parts of Disney's business.

Notably, streaming has proven to be a cost-intensive and competitive business. In fact, Disney's "direct to consumer" segment lost over $1 billion in the third quarter of 2022 alone. That's a brutal cash drain for any company.

Overall, despite materially improved results, Disney's Q3 adjusted earnings only came in at $1.09 per share. Sure, that's up from $0.80 per share in 2021, but it's well below the $1.35 it earned in Q3 2019. Perhaps the big price drop makes sense, given that backdrop and the uncertainty around media consumption trends.

One particularly telling factor, meanwhile, is the dividend -- or, in this case, the lack of a dividend. It's perfectly understandable that Disney eliminated the dividend in 2020. But it has no plans to pay one in 2022 and hasn't given any direction about what investors should expect in the future.

If Disney's board of directors doesn't think the business has recovered enough to reinstate the dividend, perhaps it hasn't recovered enough to merit owning, either. Certainly dividend investors shouldn't buy it, but this nuance should probably be seen as a warning to other types of investors as well. The recovery story here is perhaps more complex than it seems.

Not bad, but still plenty of uncertainty

Disney is not a bad company by any stretch of the imagination. And it is clearly recovering from the pandemic hit. Investor sentiment, however, has been hard to predict and often looked unsupported by fundamentals. That's especially troubling given the push into the money-draining streaming space.

If you can stomach uncertainty, perhaps Disney is worth owning at current levels, even though the stock's price-to-earnings ratio is well above pre-COVID norms. This fact suggests that a recovery may already be priced into the shares.

Conservative investors, meanwhile, will probably be better off waiting for either a more developed recovery (perhaps highlighted by a dividend) or a clearer view of the future in the streaming space.