When shares of industry-leading companies fall well off their highs, it can be a great opportunity to buy them before better news sends them higher. The trick is to be certain the company has something that consumers want, which is reflected by growing revenue.
Walt Disney (DIS -0.04%) and FuboTV (FUBO 1.46%) could be great candidates. Since the end of calendar 2021, Disney's revenue has continued to grow, primarily driven by growth at theme parks and growing subscriptions for its streaming services, including Disney+. Meanwhile, live TV streaming service fuboTV has benefited from the cord-cutting trend, which has sent revenue and subscriber numbers surging.
These companies are experiencing growing demand for their products, but Wall Street hates these stocks because they are not converting their revenues into healthy profits. Here's why that could change.
Walt Disney
Walt Disney is one of the most valuable entertainment companies, with annual revenue of $87 billion across media networks, theme parks, consumer products, movie studios, and streaming services. The stock has fallen deeply out of favor just as Disney is starting to turn the corner in bringing down costs.
Since CEO Bob Iger returned to the helm last year, operating expenses have come down and free cash flow is improving. This is all while one of Disney's key growth engines -- the parks, experiences, and products segment -- posted a revenue increase of 13% year over year last quarter.
Data by YCharts
What makes Disney stock a screaming buy right now is that the parks have untapped growth potential. The company's internal research has found more than 700 million people who identify as Disney fans, yet only about 10% of them have visited a park. Disney has been building new attractions and upgrading its parks for years, but management sees opportunities to build more attractions to drive more growth.
The parks segment has been one of Disney's biggest profit drivers over the last decade, so expanding the number of attractions should generate a healthy return on investment. Disney is planning to launch new Frozen-themed lands, in addition to attractions based on other characters and brands that haven't been fully leveraged yet.
In the next few years, the biggest catalyst to move the stock higher is going to be turning a profit with Disney+. The company appears well on pace to accomplish this after cutting the direct-to-consumer segment's operating loss in half last quarter.
Overall, this is a rare opportunity to buy one of the most iconic brands in history at a fire sale price.
FuboTV
Sports streaming platform fuboTV expects to end the year with about $1.3 billion of revenue and over 1.9 million subscribers worldwide. These are remarkable numbers for a service that reported just $218 million in revenue three years ago. With the company on track to generate positive free cash flow by 2025, the stock could be on the verge of a rebound.
Indeed, just a hint that fuboTV is starting to turn the corner financially has already sent the stock up 36% this year, so there could be significant upside once the company reaches breakeven. It's getting much closer since cutting its net loss nearly in half last quarter, with free cash flow also turning higher.
The streaming service added new regional sports networks and other premium content offerings that drove a 23% increase in North American subscribers. As operating expenses start to come down as a percentage of revenue, it is allowing more top-line growth to drop to the bottom line.
Data by YCharts
The company also demonstrated an ability to get customers to pay a little more for content, which helped grow North American revenue 41% over the year-ago quarter. The market for live TV is competitive, but fuboTV's ability to raise prices shows that its sports-centric platform is proving to be a solid competitive advantage.
One upcoming catalyst to watch is the recovery in the advertising market, which generates a small amount of profitable revenue for fuboTV. The 2024 election cycle should bring a wave of political ads that could benefit the company.
There were still 65 million pay TV subscribers in the U.S. last year who are gradually cutting the cord in favor streaming. That means fuboTV still has a large opportunity ahead. It's already showing it can attract subscribers, so it just needs to continue exercising good cost controls. Once it turns a profit, this streaming stock should be trading much higher.
