3 Reasons to Buy Disney Stock Like There's No Tomorrow

Walt Disney (NYSE: DIS) is a well-known name in the media and entertainment industries, but its stock performance has been disappointing in recent years. Since February 2019, Disney's share price has dropped by 22%, which is concerning when compared to the significant gains seen in the broader S&P 500 index. However, it's worth looking deeper into Disney, especially with its shares currently trading 46% below their peak. Here are three compelling reasons to consider buying Disney stock.

1. Success in Direct-to-Consumer Streaming

The first reason to invest in Disney stock is the promising progress in its direct-to-consumer (DTC) streaming division. Disney+ was launched in November 2019, and initially, the service incurred significant operating losses as the company heavily invested in scaling up its offerings. This was a significant factor in the stock's underperformance.

Fortunately, the DTC division is turning a profit. In the first quarter of Disney's fiscal year 2025 (which ended on December 28), Disney+ and Hulu combined generated $293 million in operating income. Management projects that the DTC segment will earn $1 billion for the full fiscal year, with plans to achieve a 10% operating margin by 2026—an impressive improvement from near-zero margins experienced in fiscal 2024.

CEO Bob Iger’s focus on cost efficiency is helping, as he aims to produce fewer but higher-quality content. This strategy has not hindered subscriber growth, with Disney+ and Hulu (excluding Live TV) increasing their user bases by 12% and 9%, respectively, year-over-year in the last fiscal quarter.

Disney's strong intellectual property allows it to leverage pricing power effectively, making it a dominant player in the streaming market. Additionally, Disney can bundle its services, enhancing customer engagement and minimizing subscriber churn. With the upcoming launch of an ESPN streaming service, Disney's DTC division is likely to significantly enhance the company's earnings in the future.

2. Growth in Experiences Segment

The second reason to consider Disney stock is the steady growth of its parks, cruises, and consumer products, collectively termed as the experiences segment. In fiscal 2024, this segment contributed 37% of Disney's total revenue and an impressive 60% of its operating income. It is arguably the most vital aspect of Disney's business, given the high entry barriers in the industry and Disney's ability to increase prices gradually.

Disney executives plan to invest $60 billion over the next decade to enhance this segment. This investment will focus on expanding attractions at parks and increasing the number of cruise ships in its fleet, aiming to accommodate more guests worldwide.

Disney recognizes that there is significant untapped demand, as executives have noted, "for every guest who visits a Disney Park, there are more than ten people who have an affinity for Disney but do not visit the Parks." This indicates a strong potential for growth.

3. Underappreciated Stock Valuation

The third reason to buy Disney stock is its current valuation. With its shares trading 46% below their all-time high, many analysts view the stock as undervalued. While the market has expressed concern about Disney's ability to adapt to changes in the media landscape, recent financial performances show that the company is making positive progress.

Investors can purchase Disney shares at a forward price-to-earnings ratio of 19.8, which is about 12% less than the overall S&P 500. This valuation gap is expected to narrow, perhaps even reverse, once the market remembers that Disney is a foremost consumer brand with outstanding intellectual properties and a growing capacity for earnings. For those with a bullish outlook, buying this stock could be a wise investment strategy.

Disney, Stock, Investment