Don’t Even Think About Buying Disney Stock Until This Date

Stock Market

Disney (NYSE:DIS) once known as the theme-park king, is reimagining itself as a standout streaming service. The company has an upcoming earnings event, and Disney needs to show vigorous growth in that sector. Otherwise, DIS stock could fall sharply. So, it’s wise to wait for a while instead of buying shares now.

You’ll want to keep an eye on Disney’s ESPN sports network business. If Disney seeks to position itself as a premier content provider, ESPN is an important piece of that puzzle. Unfortunately, recently released information indicates that ESPN isn’t a massive revenue-generating juggernaut for Disney.

DIS Stock Isn’t Cheap Just Because It’s Down

To borrow a concept from Warren Buffett, price is what you pay, but value is what you get. The DIS stock price has declined significantly since February of this year. Yet, this doesn’t mean Disney shares are a bargain.

A quick check of Disney’s GAAP-measured price-to-earnings ratio reveals that it’s quite high at 64.48x, versus the sector median P/E ratio of 14.5x. Disney’s trailing price-to-sales ratio of 1.65x is also elevated, especially compared to the sector median P/S ratio of 1.04x.

Even beyond the valuation metrics, investors should wonder whether Disney offers a strong value as the company shifts its focus to digital content. Take ESPN, for example. Apparently, Disney’s management wants to accelerate ESPN’s transition from traditional TV/cable to streaming.

Unfortunately, ESPN isn’t demonstrating growth. During the nine months to July 1 of this year, ESPN’s revenue was down 1.3% on a year-over-year basis. Also during that time frame, profit at Disney’s sports TV networks declined 20%.

Additionally, KeyBanc analyst Brandon Nispel considered the challenging obstacles Disney will have to overcome to get better bottom-line results from ESPN.

“We suspect it will be difficult for Disney to drive much better operating income given rising sports costs, including the upcoming NBA renewal,” Nispel warned.

Disney Raises Streaming Service Prices

It’s no secret that Disney’s streaming business has lost money. In its most recently reported quarter, Disney’s streaming business losses totaled $512 million. Also, the company reported a 7.4% quarter-over-quarter decline in Disney+ subscribers.

If Disney is trying to entice more subscribers to its streaming services, then raising prices isn’t the way to do it. Yet, that’s what Disney is doing. In fact, the company recently hiked its streaming service subscription prices for the second time this year.

Specifically, Disney raised its Disney+ ad-free plan from $10.99 per month to $13.99. The company hiked the Hulu ad-free plan from $14.99 per month to $17.99.

This just doesn’t seem like the right move to make after Disney posted a decline in Disney+ subscribers. I might be proven wrong if Disney posts strong streaming business sales numbers in its upcoming quarterly reports.

Here’s the Key Date for DIS Stock

Speaking of upcoming quarterly reports, Disney will release its next one on Nov. 8. Prudent investors should watch closely for positive trends in Disney’s streaming business subscribers and sales figures.

After all, Disney’s financial health doesn’t depend solely on theme parks anymore. The bottom line is that DIS stock isn’t a great value just because it’s falling, and Disney really needs to show improvement with ESPN and as a digital content provider generally.

Therefore, it’s wise for prospective investors to wait until Nov. 8 to get more information. Then, you’ll be better positioned to assess Disney’s true value and decide whether or not to take a share position.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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