Disney Likely Undervalued

Disney is currently the worst performing stock of the year of the 30 included in the Dow Jones Industrial Average. As of this article, Disney has lost around 9 percent of its value, and now stands close to $95.50 per share. And while those that have lost money on the stock might disagree with this assessment, Disney has many great things going for it right now, and regardless of what the short term prognosis for the company might be, it seems that the company is poised to grow.

If you are a binary options trader, long term options might not have much appeal to you. They tie your cash up, and the return on them is far less than if you had taken out several short term options. However, there is a benefit to long term options in that in many situations, they provide a higher likelihood of success. Disney is one of those instances right now.

Here’s why.

Disney is one of those companies that has a universal appeal. Your kids probably love Disney movies and beg you to go to Disneyworld. You likely watch Disney programming on TV through ESPN or another major station. Disney has a large reach, and this means that they have a large and diversified cash flow coming into the company. They also recently purchased BAMTech, a streaming service company. There have been many concerns about Disney, who derives much of their cash from their television programming. By having better streaming services, they are taking a position which will provide the company with better income through TV without having to worry about lower ratings on ESPN. That’s been a huge hindrance to the company over the last few months, and has been one of the primary reasons that the stock’s price has dropped.

Disney also crushed on their earnings report last quarter, meaning that the company is more profitable than analysts thought. This didn’t do much to drive up prices over the short term thanks to a negative investor view of the company, but that’s not a bad thing. As the company keeps beating on earnings estimates, the company will grow stronger financially. It might not be at that point just yet, but the efficiency of the market will eventually take effect and Disney’s price will go up. It’s undervalued right now, and if the company keeps beating on earnings, the rest of the world will catch on and drive its share price up. With a steady cash flow like we see now, and with a strong management team able to reinvest that money into more opportunities (like BAMTech), it’s only a matter of time before this happens.

It’s also worth noting that while many film studios face a gamble when they put out a movie, Disney seems to have found a successful formula for putting out creative, inspired, and profitable movies. The year is not yet over, but of the top five grossing movies so far, Disney has been behind four of them. Movies are expensive to make and often see little in terms of profits, but Disney has not succumbed to this in recent years. Is this likely to continue? It’s impossible to tell for certain, but it probably will.

These are concepts that can apply to any stock, but we are looking at Disney today because it is a major company, is included in the trading choices of most binary options brokers, and it’s a household name. Even if you have no intentions of buying and holding the company, it provides an interesting case study for binary traders because it has seen so many ups and downs over the last several months.