Should Investors Buy Disney or Netflix Stock on the Dip?

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By Amit


Recent market concerns have been centered around potential issues in the U.S. banking system, particularly among regional banks.

However, with volatility spilling over to broader markets investors may be getting their watchlists together for buy the dip candidates.

Two popular stocks that investors may consider are Disney (DIS) and Netflix (NFLX), let’s see if it’s time to buy either of these consumer discretionary giants after last week’s selloff.

Recent Performance

Following last week’s selloff, Disney stock is down -7% this month Vs. Netflix’s -9% with both underperforming the S&P 500’s -2%. Disney stock is up +6% year to date to top Netflix and the benchmark’s virtually flat performances.  

Furthermore, after a volatile 2022, Disney and Netflix are two stocks that many believe could have substantial rebounds this year as inflationary concerns start to subside. To that note, Disney and Netflix stock sill trade 36% and 26% from their 52-week highs respectively.

Disney may especially stand out to investors in terms of recovery hopes. Disney stock is still down -28% over the last year to largely underperform Netflix’s -11% and the broader indexes.


Image Source: Zacks Investment Research

Valuation

Monitoring the valuation of Disney and Netflix will continue to be important in gauging their upside and rebound prospects.

In this regard, both stocks trade attractively relative to their past from a price-to-earnings perspective. Netflix especially stands out trading at $294 and 26.1X forward earnings which is well below its decade high of 513.4X and a 75% discount to the median of 107.3X.

In comparison, Disney trades at $92 per share and 23.5X forward earnings, considerably beneath its own decade high of 134.4X and closer to the median of 19.9X.

Even better, the price to sales that investors are paying for both companies is far more reasonable. Disney’s price to sales of 1.8X is 63% below its decade high of 5.1X and offers a 35% discount to the median of 2.9X. Looking at Netflix, its P/S multiple of 3.8X is 65% below its decade-high of 11X and 36% beneath the median of 6X.

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Image Source: Zacks Investment Research

Growth & Subscribers

With the valuation of both companies becoming more attractive, investors will want to see Disney and Netflix’s growth continue.

Following their most recent fiscal quarters, Netflix stood at 230.75 million subscribers which topped Disney Plus at 161.8 million subscribers. Netflix subscribers grew by 7.66 million during the quarter while Disney lost 2.4 million users its first reported decline since launching in 2019.

Impressively, when including its ESPN+ and Hulu services, Disney’s total subscribers have surpassed Netflix at 234.7 million. Disney earnings are expected to rise 13% in fiscal 2023 and soar another 36% in FY24 at $5.42 per share. Sales are forecasted to be up 9% this year and rise another 7% in FY24 to $96.12 billion.

As for Netflix, earnings are projected to be up 12% this year and climb another 28% in FY24 at $14.29 per share. Sales are forecasted to rise 8% in FY23 and jump another 11% in FY24 to $38.12 billion.

Zacks Investment Research
Image Source: Zacks Investment Research

Takeaway

Disney and Netflix stock both land a Zacks Rank #3 (Hold) at the moment. For now, most of the volatility surrounding last week’s selloff is starting to be contained within the financial sector.

There may still be better buying opportunities ahead for Disney and Netflix stock but holding on to shares at their current levels could be rewarding as they appear to be resuming growth following a rough 2022 for most companies.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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