Dealmaker’s Diary: Can This Beloved Company Recapture Its Magic?

Alpesh Patel|February 15, 2024

Editor’s Note: Welcome to the Dealmaker’s Diary! Each week, hedge fund CEO and trading champion Alpesh Patel will give you an inside look at how he analyzes stocks with his proprietary – and award-winning – Growth-Value-Income (GVI) system. Plus… he’ll share the secrets to his decades of success as an investor, entrepreneur and Dealmaker to royalty.

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It’s “readers choice” week in the Dealmaker’s Diary…

And as requested, I’m diving into the numbers on an iconic and beloved entertainment company.

Once a high-flier at close to $200 per share, the stock now sits just above $100.

But with momentum finally shifting… can it recapture its former magic?

Earnings and revenue are forecast to grow… and the stock is relatively undervalued.

Plus… it passes my proprietary Growth-Value-Income rating system.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to watch it.

And if you have a stock you’d like me to run through my GVI system, send the ticker to mailbag@manwardpress.com.

 

Transcript

Hi, friends, and welcome to the Dealmaker’s Diary and Stock of the Week.

The grand reveal is The Walt Disney Company (DIS)… a little bit of Walt Disney drama there.

This actually came from a reader. They asked me to have a look at the company. It happens to be one that I particularly like as well. So that worked out well.

Now, you will know Walt Disney, of course. You might not know it’s one-fifth of a trillion dollars in size, which by today’s company size makes it quite small, given how many companies we’ve got which are over the trillion-dollar mark.

It is forecast to grow earnings and revenues, which is good.

Let’s just take a dive into some of those numbers, shall we?

And when we look at them on my proprietary Growth-Value-Income Rating – which, remember, is my algorithm that looks at the valuation of a company, the revenue growth of a company, the profit growth of a company, and by valuation, I mean its share price compared to its profitability, its dividend yields as well – now, this is 7 out of 10, which means it meets my minimum criteria.

The forecasted P/E ratio multiple is 23.5. That means you’re paying $23.5 for every dollar of expected or forecasted profits. It’s not cheap. It would be cheap if it were a tech company, and you might argue, “Well, actually, surely Disney is more of a tech company. Aren’t they doing things in AI?” It’s one argument that could be made.

Cash return on capital invested (CROCI), invented by Deutsche Bank, is used by Goldman Sachs Wealth Management for their wealthiest clients. A bit low, this number, at 2.7%. Usually most of the companies I pick are in the top 25% by cash return on capital invested.

If you want to learn more about it, click here. And I’ll have some new research out soon that shows why it’s something every investor should look at.

But 2.7%, at least it’s positive. It’s generating cash on the capital it invests.

Sortino, not ideal. That’s reward versus risk. Would have liked that to be a bit higher. Volatility, that’s okay at 15.6.

So moving forward, looking at this stock, you can see that the MACD, the monthly moving average convergence/divergence, has oversold. It’s all the way down here and it’s just starting to pick up and rise. And that’s good, and it’s rising quite smoothly.

And you can see the P/E ratio is quite weak. All of those things are rather positive.

Now, I’ve put a forecast on there, which is a very optimistic one. It’s actually saying what would happen if the stock went to all-time highs, which I don’t think it’ll do in the next 12 months, but it’s just a project to show you the most bullish possible case.

On a discount cash flow basis, it’s a little bit undervalued, not very, a little bit undervalued. Discount cash flows are notoriously inaccurate, actually. Small change in the discount rate, and a company could go from undervalued to overvalued. So I don’t put too much weight on those factors.

Thank you very much. At this point, I really want to do a Donald Duck or a Mickey Mouse sort of voice. And closest I’ve got is Warner Brothers, which is not Disney… but “that’s all folks.”

Sorry.