Walt Disney (DIS -0.15%) shares have tumbled. They now trade 52% below their record from March 2021 as of July 20, at a price-to-earnings (P/E) ratio of 15.4. But the business is performing well from a fundamental perspective.
Netflix (NFLX -0.15%) has also faltered. Its shares are 50% off their peak from June 2025. However, they trade at a P/E ratio of 21.3, 38% more expensive than Disney.
Why is the House of Mouse so much cheaper than the streaming pioneer? This is the only answer that I can think of.
Image source: The Motley Fool.
Holding on to the past
Investors who have followed Disney for a while know that the stock can never sustainably command a high valuation multiple from the investment community. That's particularly true right now. I believe there are two headwinds that pressure the stock.
The market probably continues to punish the stock because Disney's cable networks, a dying offering, are still a material part of the overall business. During fiscal 2025 (ended Sept. 27, 2025), this segment generated 10% of the company's total revenue and 17% of its operating income.
To be clear, these figures have continued to come down, but they highlight an anchor that prevents Disney from truly letting go of its past. This situation creates a financial impediment, as gains in other segments have to work harder to offset the secular decline of cable TV.
Another headwind relates to the nature of this company. Disney has always been a capital-intensive business. Creating and acquiring content is particularly expensive.
In the physical world, the theme parks and cruise ships require significant capital to maintain and grow. This reality isn't changing, and it sucks up capital that could be returned to shareholders in the form of higher dividends and stock buybacks.
Putting a premium on a pure-play streamer
Netflix shares don't look like their usual self these days. They're 50% below their all-time high. The stock immediately sank after the business reported its first-quarter results in April. And it fell again when Netflix gave investors its latest update on July 16.
Slower growth might be one of the main reasons for the dip. Netflix is forecasting a 13.3% year-over-year revenue gain in 2026. That would be the third slowest increase in the past 10 years.
Even during a notable share-price decline, though, Netflix stock commands a 38% premium to Disney. The market clearly highly values a pure-play streaming entity, especially one that pioneered the industry and has long held such a dominant position. Netflix doesn't have legacy assets that are a drag on its financial performance. It has been able to focus fully on streaming entertainment, with a natural evolution into advertising and live events.
Over the past five years, Netflix's revenue increased by 73%, higher than Disney's 62% gain. In the most recent fiscal quarter, the former posted a stellar operating margin of 33.4%, well ahead of the latter's 18.3%. These important financial metrics support the market's more favorable view of Netflix.
NYSE: DIS
Key Data Points
Where the opportunity is
Investors might be inclined to move quickly to buy Netflix shares while they've fallen so much. But I don't believe this is the right opportunity. Even at a P/E multiple of 21.3, the stock isn't cheap, particularly when competitive forces are creating the most difficult operating environment in the company's history.
Disney looks like the better buy of these two entertainment juggernauts. Its valuation, of course, presents an attractive opportunity for long-term investors to acquire a competitively advantaged company. Consensus analyst estimates call for adjusted diluted earnings per share annualized growth of 11.5% between fiscal 2025 and fiscal 2028, as success in streaming and experiences drive higher profits going forward.
It doesn't look as if Netflix's premium is going away anytime soon. However, Disney's discount is too hard to pass up.
