Please accept this special edition offering on Walt Disney Company (DIS) as a lesson on valuation. Over the many years I have been a value investor, I have learned that even the best companies can become dangerously overvalued by the market.

Sometimes they can remain that way for extended periods of time. We have seen this many times in history. The “Nifty Fifty” era, the irrational exuberant era, the tech bubble, etc.

All of those periods of time they were classifications of stocks that had tremendous momentum, but they all ended badly in the long run. In the short run sentiment rules, but in the long run fundamentals are what matters the most.

For those of you who have followed my work for a long time, you most likely know me as Mr. Valuation. As such, only being willing to invest in a stock at attractive valuation is a subject that is near and dear to my heart.

The reason is simple. Investing is hard enough and mistakes are certain to happen if you engage in it long enough. However, extreme levels of valuation are obvious mistakes that can and should be avoided.

Every Wednesday the Dividend Kings get together via a conference call and discuss ways that we can make our service better and more valuable for our subscribers. In today’s meeting one of our associates asked the Dividend Kings about Disney stock because his brother had a large chunk due to previous employment at the company. One of our Kings, who will remain nameless, suggested that Disney was a great hold because it was a great company and earnings were expected to increase 189% in fiscal 2022.

As Mr. Valuation, I agree that Disney is a great company, and I also agree that consensus estimates suggest earnings will recover 189% in fiscal 2022. However, I could not bite my tongue, and to be true to my Mr. Valuation moniker, I blurted out that, no, Disney was insanely overvalued. As a result of that conversation, and because I believe it is my professional obligation, I offer the following analyze out loud video where I illustrate why I believe Disney is dangerously overvalued.

Walt Disney Company: FAST Graphs Analyze Out Loud Video

Summary and Conclusions

I am a fervent believer that true value investing is all about running the numbers out to their logical conclusion. The discipline and process of doing that is the best antidote I know of to protect you from falling in love with an investment. I say this even when the core business is worthy of being loved – as I believe Disney is. On the other hand, I have also learned through experience (the hard way) how dangerous overvaluation can be. It is not that it just causes you to either lose money or generate very poor returns. That is bad enough. What I hate most about investing in an overvalued stock is it causes you to lose precious time. Money can be made back with shrewd investments. Time on the other hand cannot.

— Chuck Carnevale

Source: FAST Graphs