Disney (DIS) shares are at all time highs, but the company is still a good investment. Over the past year, Disney stock is up roughly 73%. Many investors might be wary of purchasing a stock when it is at all time highs, but based on Disney's track record and its growth potential, I believe it still has a ways to go.
Reasons to buy Disney
Here are my reasons for Disney's continued success. First, a look at Disney's current financial status. Third quarter earnings per share were up 31%. This was led by a 21% increase in operating income, much of it coming from its Parks and Resorts Division. Disneyland California recently finished a Cars Land addition to the park, which has helped the park set record attendance levels this past summer.
Disney's earnings are fairly good. It has a net margin of 11.76% and has experienced good earnings growth over the past year. Earnings per share in 2011 were $2.54 and are expected to grow to $3.09 by the end of 2012. This is comparable to one of its main competitors, Time Warner (TWX), which had earnings per share of $2.71.
While already performing well, Disney's outlook for the future continues to be positive. The Avengers franchise will continue to be a big money maker. The film grossed almost $1.5 billion and a second one is in the works for 2015. Disney is planning to use the characters in other movies as well, and even create a TV show based on the characters.
Disney is also building a multi-billion dollar theme park in Shanghai. A new Disney resort opened in Hawaii last year. Finally, Disney recently launched a new cruise ship. All these factors bode well for Disney's future.
Reasons to avoid Disney
Besides the share price being near all time highs, there are other reasons to avoid Disney, which has experienced its fair share of struggles recently. The movie "John Carter" was a major disappointment, creating a $200 million loss. Disney also recently cancelled and wrote down a $50 million dollar loss for an animated movie already in the works.
The Olympics hurt Disney's advertising revenue as viewers flocked to competitor networks. Disney was expecting viewers to bounce back after the Olympics, but that has not occurred and TV ad revenue is down for the past month.
In addition, Disney's game division, Disney Interactive Studios, continues to struggle. It experienced an operating loss of $42 million this past quarter.
Finally, while Disney's new theme park in Shanghai should draw large crowds, its attendance could be hampered by the other entertainment center under construction in Shanghai, built by the Disney competitor Dreamworks Animation (DWA).
Disney has managed to weather the disappointments of its various losses. I believe this bodes well for the strength of the stock and I believe that Disney still possesses good growth potential. This stock is an immediate buy, as we will see it continue to grow over the next year.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.