The past twelve months have been quite disappointing for Walt Disney investors. Subscriber growth at the company’s streaming service, Disney+, helped the stock climb to a record during the first year of the pandemic. Its second year, however, saw it decline 36.5% from $203 to as low as $129 a share. Yesterday, DIS closed at $133.64 after it stepped up its boycott of Russia in response to Putin’s war in Ukraine.
Of course, Disney is not an ordinary business. During its 99-year history, it has survived through wars, recessions, inflation and the Great Depression. The past two years have put the company to another test and we have no doubt it will survive this one, too. Its long history, profitable business model and place in children’s minds give Disney what Warren Buffett likes to call a “moat.”
Is Disney an Attractive Long-Term Pick After its 37% Drop?
Usually, when the market value of a great business declines significantly, that is a buying opportunity. Can we say the same for Disney ‘s recent weakness? Let’s first examine the Elliott Wave chart below.
Disney ‘s daily chart reveals that the drop from $203 has taken the shape of a five-wave impulse. The pattern is labeled 1-2-3-4-5 in wave A, where the five sub-waves of wave 3 are also visible. The theory states that a three-wave correction in the opposite direction follows every impulse. This means that we can, indeed, expect a notable recovery to ~$160 soon.
However, it is likely to be short-lived. Impulses point in the direction of the larger trend. Once the corrective recovery in wave B is over, wave C should drag the price to new lows near $100 or even lower. In our opinion, that is where the actual long-term buying opportunities would present themselves. Besides, Disney ‘s forward price to earnings ratio of 30 is another reason for us to stay aside for now.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!
