Better Buy: Disney vs. Home Depot

Better Buy: Disney vs. Home Depot

Disney (NYSE:DIS) and Home Depot (NYSE:HD) had quite different experiences of 2020. While the home improvement giant was understandably deemed an essential retailer and its brick-and-mortar stores remained open, many of the entertainment powerhouse’s operations had to shut down for most of the year. Not surprisingly, Home Depot’s revenues surged while Disney’s plunged.

Yet despite that contrast in fortune, Disney’s stock price fared better than Home Depot’s. 

That was the past. For investors considering whether to buy a stock, it’s more important to attempt to gauge the company’s future and consider it in a long-term framework. With that in mind, let’s weigh the merits of Disney and Home Depot to determine which is the better stock to buy now. 

Data source: Ycharts.


Disney’s theme parks are still facing significant operating restrictions — and Disneyland remains closed. In the near term, the company’s parks segment is likely to experience continued trouble. Coronavirus cases have surged well above previous peaks, and although vaccinations have begun, it will be a while before a significant fraction of the population is inoculated. And it could be longer still before people feel as comfortable around others as they did before the pandemic. However, families have loved going to Disney parks for decades, so it will not be surprising to see attendance and spending at those venues start to surge soon after the worst of the pandemic is in the rear-view mirror.

Meanwhile, Disney’s streaming services are thriving as tens of millions of people are spending a lot more time at home. As of Dec. 2, the House of Mouse boasted more than 137 million subscribers across its three services (Disney+, Hulu, and ESPN+). At its investor day event, management said it expects that overall subscriber figure to reach a whopping 325 million at the midpoint by the end of its fiscal 2024. What’s more, it expects the segment to be profitable by that point as well.

And while that growth in streaming subscribers will cannibalize some of the revenues it derives from its cable and broadcast channels, the media segment provides meaningful profits. In fact, in its most recent fiscal year, which ended Oct. 3, the media segment generated 111{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} of Disney’s overall operating income. Millions of households are cutting the cord on cable. However, not everyone who currently has cable is going to cancel. That may leave Disney with a sizable portion of its current base of cable-subscribing viewers to supplement its hundreds of millions of streaming subscribers. That’s a scenario likely to reward investors for many years into the future.

A woman appearing to be considering between two options.

Image source: Getty images.

Home Depot 

In the first nine months of its fiscal 2020, Home Depot’s revenue was up 18{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb} from the same period a year ago. People cooped up in their homes have taken on home-improvement projects both as a necessity and a pastime. The home now needs to be an office, a school, and a place for keeping oneself entertained. That is leading people to either update their spaces or add new spaces entirely.

Many renters have decided rather than updating spaces that belong to someone else, they want to purchase homes —  and homeowners tend to spend more on their homes than renters do. Additionally, since owning a home is a long-term commitment, this could drive increasing home-improvement spending far beyond the end of the pandemic.   

Finally, one of the pandemic’s lingering effects may be that more people will continue to work from home, at least for some part of the week. That could spark further spending on upgrading home offices as well as for ongoing maintenance of those spaces. 

Overall, conditions point to continued increases in spending at Home Depot for a population whose homes are now fulfilling even more roles than they did before. That said, it’s unlikely that Home Depot will be able to sustain its double-digit percentage revenue growth rate. In the last decade, Home Depot grew at a compound annual rate of 5.2{911ea05452e114f1778c76ca86733b6032c246f8f651bb1f01d12abf04b54efb}. That’s the general level of growth that investors can expect from Home Depot in the long run. 

The verdict 

A chart comparing Home Depot and Disney on various financial metrics.

Data source: Ycharts. PE = price to earnings, PS = price to sales

Disney is trading at a premium compared to the Home Depot. Still, that premium can be justified because it has historically been the more profitable company. What’s more, the investments that Disney is making in its streaming services make it more likely to achieve higher revenue growth than Home Depot. Therefore, investors who are deciding between these two incredible companies should go with Disney. 

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