Since picking up shares of The Walt Disney Company (NYSE:DIS) back in mid-May, it seems the stock may have hit a double top of $67.50/share and is on its way down from that double top. I picked up shares of Disney back on 21 May 2013, and since then, the stock is down 1.72% and has been lagging the broader market as measured by the S&P 500, which has gained 1.52%. That may have been the effect of The Lone Ranger pretty much being a bust. Thor: The Dark World, a Marvel movie coming out in the fall, may stop the losses from The Lone Ranger. With these things in mind, I'd like to take a fundamental, financial, and technical look at the stock right now to determine if it is worth picking up some additional shares in the company.
Disney currently trades at a trailing 12-month P/E ratio of 19.75, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 16.50 is currently fairly priced as well for the future in terms of the right here, right now. Next year's estimated earnings are $3.94/share. The PEG ratio (1.6), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 5-year horizon), tells me that Disney is fairly priced based on a 5-year EPS growth rate of 12.33%.
On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. Disney boasts a dividend of 1.15% with a payout ratio of 18% while sporting return on assets, equity and investment values of 7.6%, 14.7% and 11.4% respectively; which are all respectable values. If maybe you feel the market will retract a little more and would like a safety play, I don't believe the 1.15% yield of this company is good enough for you to take shelter in for the time being, but the dividend growth prospects are phenomenal. Granted, Disney pays a dividend only once a year; the last time they increased the dividend, it was increased by 25%, and that is dividend growth I love to see.
Looking first at the relative strength index chart [RSI] at the top, I see the stock muddling around in middle ground with a value of 52.26 but no real trajectory. Next, I will look at the moving average convergence-divergence [MACD] chart and see that the black line is below the red line with the divergence bars about to increase in height toward the negative side, indicating the stock has downward momentum. As for the stock price itself ($64.98), I see the 20-day and 50-day moving averages acting as support and $65.19 acting as resistance. If the stock can break through resistance, I believe it can hit $67.24, and if it breaks to the downside of support, I see it going to $63.51. Personally, I want to wait a couple of days to see what happens with these support and resistance levels, because getting in the middle of a double top pattern to the downside is not something I want to do.
- Disney has been testing a method of utilizing wristbands to increase customer spending at its Walt Disney World theme park. The idea proved to be an excellent idea, and a full rollout of the wristbands at Walt Disney World will be coming by the end of the year. This will bring in additional revenue to the company as all it takes is the swipe of the wristband to purchase anything and charge it to your account.
Disney is fairly valued based on future earnings and fairly valued on future growth prospects. The growth prospects are in double digits for the company, so I'd like to see the price of the stock itself come down a little for it to be more attractive. Financially, the payout ratio is extremely low in spite of raising its annual dividend 25% back in December of 2012. The company has only been raising the dividends since 2010, after a brief halt in increases back in 2008. This dividend growth doesn't bother me, as I see this to be a well-run company with great growth prospects, which will in turn allow the company to increase the dividend going forward. The technical situation of how the stock is currently trading is what is telling me that it can trade to the downside for a bit, and I believe if I can get a pullback as I'm expecting I will add to my position in this fabulous company. Personally I'm going to hold off on purchasing any of it until I see it get to oversold territory on the RSI chart and confirm it with a bullish pattern on the MACD chart; for now.
Disclosure: I am long DIS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.