4 Points to Consider Before You Buy Disney

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Source: Thinkstock

Source: Thinkstock

The Walt Disney Company (NYSE:DIS) posted a spectacular headline earnings number after the market closed on Tuesday. The company increased its earnings by 27 percent, and its earnings per share by 30 percent — thanks to share repurchases.

Furthermore, all of the company’s segments produced strong double digit sales growth with the exception of its theme park business, which increased revenues by 8 percent, and its media business, which increased revenues by 4 percent. Investors, having already baked in strong earnings numbers, bid up the shares by about 1 percent during after-hours trading.

This is all very good news, and considering that the stock trades at about 20 times earnings, it seems like a good buy considering the strong earnings growth we are seeing. However, before jumping into Disney shares, investors should consider the following points.

First, the stock trades within a couple percentage points of its all time high of $83.65/share. Generally speaking, it is not a good idea to buy a stock when it is trading near an all time high. It is better to wait for a pullback. Depending on a given stock’s volatility and the size of the company, it is prudent to wait for at least an 8 percent pullback, and as much as a 25 percent pullback. Considering that Disney is a $150 billion company, 8 percent seems more appropriate, and given the weakness we are seeing in the broader stock market, I wouldn’t be surprised if we see the stock pull back to the low to mid $70s.

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