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Disney or Netflix? And the Winner Is…

Sometimes taking a step back and looking at the big picture can provide insights for investors.

Image via Carterhawk/Wikimedia

Sometimes taking a step back and looking at the big picture can provide insights for investors. Take Walt Disney DIS stock, suggests Chuck Carlson, dividend expert and editor of DRIP Investor.

Walt Disney’s market capitalization is less than $150 billion. Market capitalization is determined by multiplying the number of outstanding shares times the per-share stock price. In essence, a stock’s market cap is the value Wall Street is assigning the company.

Interestingly, the market cap for Netflix NFLX is now $153 billion. That’s right. Wall Street now values Netflix — with annual sales of around $13 billion and net income of around $670 million based on the last 12 months — more than Disney, with annual revenue of more than $55 billion and net income of $11 billion.

Now, is Wall Street crazy? Well, the example here shows just how much Wall Street values future growth. The bet, of course, is that Netflix will continue to show vastly superior growth potential to Disney to justify its much higher valuation.

But a question every investor should be asking is the following — if you had enough money to buy all of the companies, which one would you buy? Actually, this is much more than an academic question. Indeed, stock investors, whether they realize it or not, answer this question every time they buy or sell a stock.

Which company would you rather own? For me, the choice is pretty easy. If I had unlimited funds, I would much rather own Disney than Netflix. I think I would be getting much greater bang for my investment.

While Disney stock could continue to be a sluggard in the near term, I think there is just too much value here to ignore. I like the stock’s long-term prospects and would be a buyer at these prices.

Disney offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.

Chuck Carlson is editor of DRIP Investor.

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