DIS: 3 Popular Stocks that are Overvalued at Current Prices

New trends ushered in by the COVID-19-pandemic helped push growth stocks new highs last year. However, investors are now turning their attention to a different class of stocks as the economy enters a recovery phase. A rotation by investors toward value stocks from growth stocks is evident from the Vanguard Value ETF’s (VTV) 10.4% gain year-to-date, versus the Vanguard Growth ETF’s (VUG) marginal decline over this period.

Growth companies have been trying to recover their lost momentum by improving their product pipelines and increasing their operational efficiency. But their declining growth potential–with people gradually returning to an “analog” way of life–is making them look significantly overvalued.

The Walt Disney Company (DIS), The Boeing Company (BA), and Snap Inc. (SNAP) are currently trading at lofty valuations absent high growth potential. So, we think they are best avoided now.

The Walt Disney Company (DIS)

As one of the top entertainment companies worldwide, DIS operates through four business segments — Media Networks, Parks Experiences and Products, Studio Entertainment, and Direct-to-Consumer and International. Its Disney + streaming service generated huge demand amid the coronavirus pandemic because people spent more time at home. Its theme park segment is expected to benefit in the near term because two of its theme parks in California are expected to be re-opened on April 30.

On March 18, ESPN, a unit of DIS, reached a long-term agreement with the National Football League (NFL) through 2023 that is expected to result in ABC/ESPN joining the Super Bowl coverage rotation, additional playoff action coverage and exclusive national ESPN+ matchups among others. In February, DIS unveiled a trailer for its feature film, Luca. However, the company has been facing allegations of pay discrimination and pay secrecy.

DIS is scheduled to release its financial results for its fiscal 2021 second quarter on May 13, 2021, after the market closes. For its fiscal 2021 first quarter, ended January 2, DIS’ revenues declined 22.2% year-over-year to $16.25 billion. Its total segment operating income decreased 66.7% year-over-year to $1.33 billion. Also, , the company’s EPS was $0.32, down 79.1% year-over-year.

Analysts expect DIS’ EPS to decrease 53.3% year-over-year for the current quarter, ending March 31, to $0.28. Its revenue is expected to decline 12.2% year-over-year to $15.82 billion for the quarter. In terms of forward non-GAAP price/earnings, DIS is currently trading at 97.53x, significantly higher than the industry average 20.66x. And in terms of its forward enterprise value/ebitda, the stock is currently trading at 42.54x, 295.7% higher than the industry average 10.75x.

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DIS closed yesterday’s trading session at $192.28. It is currently trading 5.3% below its 52-week high of $203.02.

DIS’ POWR Ratings are consistent with this bleak outlook. The stock has an overall D rating, which equates to Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

The stock also has a D grade for Quality, Value, and Growth. We have also graded DIS for Sentiment, Stability, and Momentum. Click here to access all of DIS’ ratings.

DIS is ranked #3 of 13 stocks in the F-rated Entertainment – Sports & Theme Parks industry.

The Boeing Company (BA)

Based in Chicago, Illinois, BA designs, manufactures and sells commercial jetliners, military aircraft, satellites, missile defense systems, human space flight and launch systems and services worldwide. The company operates through four segments—Commercial Airplanes (BCA), Defense, Space & Security (BDS), Global Services (BGS), and Boeing Capital (BCC).

A cryogenic core stage built by BA for NASA’s first Space Launch System (SLS) rocket successfully completed its hot fire testing at NASA’s Stennis Space Center on March 18. BA and 777 Partners, a private investment firm, announced an agreement on March 12 to add 24 737-8 airplanes to the firm’s diverse aviation portfolio, with purchase rights for an additional 60 airplanes. However, the Federal Aviation Administration (FAA) said on March 17 that it will perform pre-delivery safety checks on four of BA’s 787 Dreamliner planes, rather than the company doing so, because of heightened scrutiny of BA’s production problems.

The company’s revenue for the fourth quarter (ended December 31, 2020) decreased 14.6% year-over-year to $15.30 billion. It’s non-GAAP operating loss came in at $8.38 billion, compared to $2.53 billion in the fourth quarter of 2019. Also, BA’s net loss for the fourth quarter was $8.42 billion, compared to $1.01 billion during the fourth quarter of 2019. Its non-GAAP core loss per share was $15.25.

Analysts expect the company’s EPS to remain negative for fiscal year 2021. Also, BA’s revenue is expected to decrease by 5.4% year-over-year for the current quarter, ending March 31, amounting to $15.99 billion. BA’s valuation ratios are much higher than their respective industry average. In terms of its forward enterprise value/ebitda, BA’s 34.74x is 161% higher than the industry average 13.31x. In terms of its forward enterprise value/ebit also, the stock is currently trading 191.4%, which is higher than the industry average (55.42x versus 19.02x).

The stock has lost 22.5% over the past three years. It is currently trading 8.1% below its 52-week high of $278.57, which it hit on March 15.

It’s no surprise that BA has an overall F rating, which equates to Strong Sell in our POWR Ratings system. Also, the stock has a D grade for Value, Quality, Stability and Sentiment. Click here to see the additional POWR Ratings for BA (Momentum and Growth).

BA is ranked #66 of 67 stocks in the C-rated Air/Defense Services industry.

Snap Inc. (SNAP)

Headquartered in Santa Monica, California, SNAP is a camera company. It is known for its wide range of stickers, Bitmojis and filters. It also provides Spectacles, an eyewear product that connects with Snapchat and captures video from a human-eye perspective. SNAP also provides advertising products that include AR and Snap ads.

On March 17, SNAP acquired Fit Analytics, a startup based in Berlin that has built technology to help shoppers find the right-sized apparel and footwear from online retailers, along with a wider set of personalization tools. The company partnered with ShareChat’s Moj app on February 10 to integrate its Camera Kit into an Indian app as the company looks to accelerate its growth in the world’s second-largest internet market.

However, SNAP’s total costs and expenses increased 23.8% year-over-year to $1.01 billion for the fourth quarter, ended December 31. Its cash and cash equivalents came in at $545.62 million, down 33.8% sequentially. Furthermore, the company’s operating loss was $97.24 million for the quarter and its net loss was $113.10 million.

Given SNAP’s weak financials, analysts expect the company’s EPS to remain negative for the current quarter, ending March 31. Also, in terms of forward non-GAAP price/earnings, SNAP’s 390.79x is 1791.7% higher than the industry average 20.66x. Its forward enterprise value/ebitda of 284.77x is also higher than the industry average 10.75x. SNAP has lost nearly 7% over the past month and closed yesterday’s trading session at $58.49.

SNAP’s poor prospects are also apparent in its POWR Ratings. The stock has an overall F rating, which equates to Strong Sell in our proprietary rating system.

The stock has a D grade for Value, Stability and Quality. In addition to the POWR Ratings grades we’ve just highlighted, you can see SNAP’s ratings for Momentum, Sentiment and Growth here.

SNAP is ranked #67 of 69 stocks in the D-rated Internet industry.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

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DIS shares were trading at $193.52 per share on Friday afternoon, up $1.24 (+0.64%). Year-to-date, DIS has gained 6.81%, versus a 4.61% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...