Disney (DIS 0.09%) is often considered a stable blue-chip stock for long-term investors. It's one of the world's largest media companies, and its sprawling portfolio of properties -- which include Pixar, Marvel, and Star Wars -- is generating a steady stream of evergreen content. It also operates the world's largest theme parks alongside its resorts and cruise ships.

But this year, Disney's stock has declined by more than 30% as the S&P 500 has dropped by less than 20%. Let's see why the House of Mouse underperformed the market -- and whether its stock can bounce back over the next few quarters.

Mickey Mouse walks down Main Street USA.

Image source: Disney.

How did Disney weather the pandemic?

The past three years were rough for Disney. In 2020, the pandemic forced it to temporarily close its theme parks and resorts, disrupted its production and theatrical releases of new movies, and caused advertisers to rein in their spending on its ad-supported media networks.

As its top-line growth stalled out, Disney continued to pour billions of dollars into its streaming business to keep pace with Netflix (NFLX -0.83%) and other over-the-top services. That's why Disney's revenue fell 6% to $65.4 billion in fiscal 2020, which ended in October of the calendar year, as its adjusted earnings per share (EPS) plummeted 65%. Those headwinds gradually dissipated as the lockdown measures ended. Still, Disney's revenue only rose 3% to $67.4 billion in fiscal 2021 as the sluggish recovery of its theme parks and resorts segment offset its rising media revenues. Its adjusted EPS grew 13%.

Disney's post-pandemic recovery gained more momentum this year as its core businesses stabilized. It also locked in 221 million streaming subscribers across all of its services at the end of the third quarter, which put it in the same league as Netflix and indicated its hefty direct-to-consumer media investments were paying off.

In the first nine months of fiscal 2022, Disney's revenue rose 28% year over year to $62.6 billion as its adjusted EPS jumped 69%. For the full year, analysts expect its revenue and adjusted EPS to rise 25% and 66%, respectively.

Why did Disney's stock stumble?

Disney's growth rates look stable, but its stock has been held back by concerns about inflation, currency headwinds, and the ongoing losses at its direct-to-consumer media division over the past few quarters.

Disney's core businesses rely heavily on discretionary spending, which generally dries up as inflation rises. That's why it struggled throughout previous recessions. For example, Disney's revenue and adjusted EPS declined 4% and 20%, respectively, in fiscal 2009 during the depths of the Great Recession. Another recession, which seems increasingly likely if rising interest rates fail to rein in inflation, could quickly end Disney's post-pandemic recovery.

The rising U.S. dollar, which will likely continue to strengthen as interest rates rise, could exacerbate that pain. Disney largely offset those headwinds with shrewd currency hedging strategies, but they're still throttling its international revenues (especially at Disney+) and could intensify in the near future.

Meanwhile, Disney's direct-to-consumer media segment's revenue rose 25% year over year to $14.65 billion (23% of its total revenue) in the first nine months of fiscal 2022. But the segment's operating loss also more than doubled from $1.05 billion to $2.54 billion, so it's still burning a lot of cash to keep pace with Netflix -- which is firmly profitable -- in the streaming race.

The bulls believe Disney can continue to subsidize its streaming losses with the growth of its other profitable businesses. However, a recession could easily torpedo that thesis by blowing up those profit engines.

Lastly, Disney's ongoing clashes with the State of Florida regarding the Parental Rights in Education ("Don't Say Gay") Act, which sparked a retaliatory threat to revoke the company's special tax status in the state, are casting dark clouds over its biggest theme park in Orlando. The situation has also caused some investors to question how Disney's CEO Bob Chapek, who took the helm in 2020, has handled the company in such a polarizing and politically charged debate.

Is Disney's stock getting too cheap to ignore?

Analysts still expect Disney's revenue and adjusted earnings to grow 11% and 40%, respectively, in fiscal 2023. Based on those expectations, Disney's stock trades at 20 times next year's earnings. The valuation might seem reasonable relative to its growth potential. However, Disney's core business is also highly sensitive to inflation and other macro headwinds. If the global economy teeters into a full-blown recession, those forward estimates will come down and its valuation will rise.

Therefore, we can't consider Disney to be a screaming bargain yet. It's still a fine long-term investment, since its media properties and theme parks should continue to lock in loyal consumers for decades to come, but it probably won't win back the bulls until the macro conditions significantly improve.