Why Disney Stock Could Outperform in 2026: Breaking Down the Undervaluation

Key Highlights

• Disney underperformed the S&P 500 in 2025, rising just 3% while the broader market gained 17%
• The company’s financial metrics tell a different story: adjusted EPS up 19%, free cash flow up 18%
• With a forward P/E ratio between 15-17x, Disney trades at an attractive valuation despite its entertainment empire
• Upcoming releases like Avengers: Doomsday, The Mandalorian and Grogu, and Toy Story 5 suggest stronger 2026 box office performance

The Numbers Don’t Lie: Disney’s Business Strengthened While Stock Lagged

Here’s the paradox that defines Disney in 2025: the stock barely moved, but the business accelerated. Revenue climbed 3% to $94.4 billion in fiscal 2025, but that’s only part of the picture. What matters more is what happened below the line.

Adjusted earnings per share jumped 19%, a meaningful acceleration that reflects operational leverage kicking in. Free cash flow surged 18%, signaling that Disney’s transformation toward profitability is real. The company’s streaming division – long the skeptic’s favorite punching bag – turned profitable midway through 2024 and has given Disney+, Hulu, and the newly launched ESPN Unlimited room to grow.

Disney also reinstated dividends in fiscal 2024 and has raised them three times since. For income-focused investors, this matters. The gap between the stock’s performance and the business’s performance has never been wider.

The Experience Segment Is Just Getting Started

Disney’s experiences business – encompassing theme parks, resorts, and cruise operations – might be the most underappreciated profit engine in the company’s portfolio. In fiscal 2025, the segment grew revenue and operating income by 6% and 8% respectively, despite new competitive pressure.

The real catalysts are just arriving. The Disney Destiny debuted in November, followed by the maiden voyage of Disney Adventure in early 2026 – the company’s largest cruise ship to date. Across theme parks globally, major expansions are in motion, with new experiences rolling out over the next several years. When a company invests this heavily in attractions and experiences, demand typically follows.

Content Still Dominates the Box Office

2025 proved a bumpy start for Disney’s studio segment. While competitors released breakout hits like A Minecraft Movie and Sinners, Disney’s live-action Snow White flopped at the box office. Yet by year’s end, the picture became clear: outside of China’s Ne Zha 2, only Disney films surpassed the $1 billion global box office milestone in 2025.

Avatar: Fire and Ash, the live-action Lilo & Stitch, and Zootopia 2 collectively represent Disney’s stranglehold on the premium film market. This pattern repeats: Disney was also the only studio to release three films exceeding $1 billion globally in 2024.

2026 promises to extend this streak. Avengers: Doomsday is expected to dominate the year’s box office conversation, while The Mandalorian and Grogu – bringing the Mandalorian symbol and sprawling Star Wars universe to the big screen – alongside Toy Story 5 fill out a schedule designed to capture year-round ticket sales. The studio may have stumbled out of the gate in 2025, but the hit factory remains unmatched.

Disney’s Valuation Versus Its Competitive Moat

Warner Bros. Discovery provides an instructive comparison. At the start of 2025, WBD carried a $26 billion market cap. Following bidding war competition over the past year, that valuation has roughly tripled. Yet even after this surge, Warner Bros. Discovery’s enterprise value remains roughly half that of Disney.

Despite owning an unparalleled content library, theme parks, streaming platforms, and cruise operations, Disney trades at just 17 times this year’s earnings and 15 times next year’s projected earnings. For a company with Disney’s diversified revenue streams and pricing power, this valuation leaves room for meaningful appreciation.

The Momentum Shift for 2026

Market sentiment has been Disney’s worst enemy over the past five years. While the stock chart paints a picture of stagnation, the underlying business has been quietly restructuring into a more profitable machine. The streaming losses that haunted 2023 and early 2024 have been arrested. The content machine remains undefeated. The experiences segment continues to surprise with resilience and growth.

Heading into 2026, Disney stock offers a rare combination: a proven cash-generating business, a pipeline of blockbuster content, attractive valuation metrics, and the kind of neglect that often precedes significant rallies. For patient investors, the setup looks compelling.