Best Stock to Buy Right Now: Sphere Entertainment Vs. Walt Disney

Everyone knows The Walt Disney Company (DIS 0.71%). The entertainment giant has been around for more than a century, creating memories for kids and parents. But the House of Mouse is changing, with a strong focus on streaming media these days.

Sphere Entertainment (SPHR 3.30%) is also a classic name in disguise, formerly known as Madison Square Garden Entertainment. The old name belongs to him now Madison Square Garden Corp.a live entertainment division that was disbanded as Sphere adopted its new name in April 2023.

So both Sphere Entertainment and Disney are legendary entertainment giants making radical changes in strategy. So far, so good — but which of these stocks is the best investment in August 2024?

Let’s find out.

Weighing two stocks by the numbers

Data from Morningstar, 08/22/2024. TTM = last 12 months.

Disney is the bigger entertainment empire in this matchup, and it’s not a close call. Sphere Entertainment’s business activities would appear as a rounding error in Disney’s financial statements.

Companies are difficult to compare in terms of valuation. Disney is making massive cash profits, and its trailing adjusted earnings were positive even in the darkest days of the coronavirus lockdown. This stock trades at a modest valuation of 23 times earnings and 21 times free cash flow.

In contrast, Sphere is unprofitable by most measures. Its high-end Las Vegas venue is starting to generate revenue, but that segment still isn’t profitable — even after heavy adjustments.

That said, the few valuations that work with Sphere Entertainment often make the stock look affordable. The price-to-sales (P/S) ratio is 1.7, just below Disney’s 1.8. And if you weight companies by the book value of assets like theme parks and giant digital spheres, Sphere Entertainment’s enterprise value to assets (EV/A) comes to 0.4. Disney looks downright expensive from this perspective, with an EV/E ratio of 1.1.

Future business plans

Sphere Entertainment plans to build a global network of advanced entertainment venues modeled after its namesake arena in Las Vegas. It’s an ambitious business, but also a risky one. These high-tech buildings are expensive, and the capital expenditures that finance their construction will weigh on the company’s bottom line for years in the form of depreciation expenses. The company can afford several more years of cash-burning operations given its $573 million in cash reserves, but 61 percent of its $1.37 billion in long-term debt is due to be repaid in the next year . With interest rates rising, this is not the best time to refinance large loan balances.

So maybe Sphere Entertainment deserves its low ratings. Investors see financial risk in this growth-oriented business plan.

Meanwhile, Walt Disney is finding his way in an increasingly digital age of entertainment. Its streaming media services generated a modest operating profit in its recently reported third quarter, while it had successes Inside Out 2 and Deadpool and Wolverine suggests that consumers remain dependent on its content portfolio.

I hope you noticed my tongue-in-cheek attitude to the idea that Disney stock looks expensive. Its price to free cash flow, P/S and price-to-book ratio are well below the averages of S&P 500 (SNPINDEX: ^GSPC) the members. This is a safe stock that you can buy in almost any economy and expect good long term results.

What stock should you buy today?

There may be a time and a place to buy Sphere Entertainment stock, but only in small, speculative portions. This exciting growth story could derail at any moment, and you’ll likely see similar concepts crop up during the truck if the company’s digitized location ideas prove to be profitable in the long run.

And you can’t really go wrong with Walt Disney. It’s a longtime mainstay of my own stock portfolio, and I wouldn’t hesitate to start a new position right now — as I said a minute ago, Disney stock is pretty affordable, and I have high hopes for its entertainment plans online.

In short, I’d rather buy Disney stock than Sphere Entertainment right now. Ask me again when the high-tech location manager finds a path to sustainable profits. For now, it’s a risky idea.