A sell-off in 2022 dragged down numerous growth stocks, and shares of The Walt Disney Company (DIS 0.18%) plummeted nearly 44% by year-end. The company's business was hit hard by economic headwinds that led consumers to cut discretionary spending.
However, Disney has a proven history of long-term gains, and shareholders who bought in 10 years ago are still up on their investments. Despite a slight recovery since Jan. 1, Disney's stock remains down 30% year over year, signaling a compelling buying opportunity. Here's why now is the right time to buy this growth stock.
Back on a growth path after a challenging few years
While most growth stocks were up in the last five years, Disney's business has suffered more than most. The COVID-19 pandemic wiped out revenue from theme parks and the box office in 2020 and 2021, while economic headwinds in 2022 made the expansion of the streaming industry expensive. Looking back five years, Disney shares are down 5%.
However, the good news is that the company's recent challenges are unlikely to repeat over the next five years. A global pandemic and a looming recession were unavoidable, but recent successes suggest Disney is back on a growth path.
In fiscal 2022, when things started reopening after the pandemic, Disney's parks revenue rose 73% year over year to $28.7 billion, with operating income soaring over 100% to $7.9 billion. The swift growth suggests theme-park guests have returned in droves, despite the high inflation that hurt other industries last year.
Additionally, Disney's media and entertainment segment reported an 8% year-over-year decline in revenue of $55 billion and a 42% fall in operating income of $2.3 billion last year as the company invested heavily in streaming and as theater ticket sales still hadn't returned to pre-pandemic form. However, the company is striving to achieve profitability with its flagship streaming service Disney+ by 2024. Meanwhile, a box office hit with Avatar: The Way of Water represents a strong return to the theater.
In mid-February, the Avatar sequel surpassed 1997's Titanic as the third-highest-grossing film worldwide, earning $2.243 billion. The achievement is a promising sign that box office returns are finally back for the entertainment giant, which has several blockbusters slated for the rest of the year. These include The Marvels, Guardians of the Galaxy Vol. 3, and the final installment of the Indiana Jones franchise.
Disney has a history of consistent long-term gains
Along with a positive long-term outlook, Disney has proven to be one of those stocks you can buy and hold indefinitely while it steadily trends up. Even with last-year's sell-off, Disney shares are up 71% over the last decade. From 2002 to 2012, Disney shares climbed 84.6%.
Disney entered its 100th year of business in 2023 and is arguably the entertainment king. As of 2019, it held a 52% market share in amusement parks, according to Khaveen Investments. Then, 2021 saw it achieve a leading 25.5% market share in North America at the box office.
Meanwhile, the launch of Disney+ in 2020 allowed the company to hit a leading 25% market share in streaming in Q3 2022, with Netflix second at 21%. Entertainment is one of those industries that's unlikely to disappear, since consumers are generally willing to pay for what they enjoy. This makes Disney's spot at the top a compelling investment.
Moreover, Disney's forward price-to-earnings ratio is currently the lowest among its biggest streaming competitors, as seen in the chart below.
Data by YCharts.
The figures show Disney's stock offers the best value among the likes of Amazon, Apple, and Netflix.
Disney's past performance has made for a solid long-term investment, and its dominating position is likely to offer consistent gains over many years. With this growth stock down 30% year over year, right now is an excellent time to buy shares.
