If you follow Warren Buffett’s long-term approach — not owning a stock for 10 minutes if you wouldn’t own it for 10 years — then you should end up holding a stock for at least 40 quarterly earnings reports. Throughout the years, however, there are bound to be times when earnings fall below expectations or guidance is decreased. The best response to this is to ignore the urge to panic-sell and relax.
Coming to the end of this earnings season, it can be a good opportunity to see if you still believe in a company, and if it still has the potential you saw when you first bought it.
These three companies declined following their earnings reports, yet still have great promise…
On Aug. 6, Walt Disney (NYSE:DIS) announced its third-quarter earnings. It reported earnings per share (EPS) of $1.35, under the expected value of $1.75. Disney blamed this underperformance on the disappointing results of Fox, increasing streaming investment costs, and weak theme park attendance. Following this announcement, shares dropped over 5%.
Despite disappointing Wall Street, Disney still has significant potential. Disney’s new streaming service, Disney+, launches on Nov. 12 and will prove to be a formidable competitor to Netflix (NASDAQ:NFLX). Not only will Disney+ offer exclusive Disney content, but the price of this service will be considerably cheaper, with Disney+ starting at $6.99 in comparison to $8.99 for Netflix. Furthermore, Disney announced that it will bundle Disney+, ESPN+, and Hulu for $12.99, expanding the target demographic of its subscription service. Over time, this platform will likely help the Fox acquisition become profitable.
While park attendance may be down this quarter, revenue in this segment is up. Average spending at U.S. theme parks rose 10% thanks to an increase in food and merchandise spending, higher hotel occupancy, and a boost in ticket prices. Because of concerns about long wait times, Disney’s new Star Wars theme park, Star Wars: Galaxy’s Edge, saw a smaller crowd than anticipated, but Disney has introduced a new “virtual queue” system to provide a better experience for attendees. On Aug. 29, Disney is launching an Orlando-based Star Wars park, and with this new park opening in Disney’s largest resort, there is no doubt that there will be a considerable revenue boost.
An extensive range of intellectual properties has made Disney one of the most culturally significant companies that we see today. Long-term investors should not lose sleep over quarterly reports for this historic company.
2. Planet Fitness
Planet Fitness (NYSE:PLNT), a gym franchise for novice and casual gym-goers, reported its Q2 earnings after the markets closed on Tuesday, Aug. 6. This report was overwhelmingly positive, with an EPS of $0.45, up from $0.31 last year and beating analyst expectations of $0.34. In spite of this, Planet Fitness stock dropped over 11% the following day.
However, the fitness industry is growing overall due to a global increase in health awareness and the rising popularity of gym culture. The number of fitness club members in the U.S. grew 4% from 2000 to 2017, with a compound annual growth rate of 10% expected in 2023.
Planet Fitness is in a great position to take advantage of this growth as it provides a “judgement free” experience for beginners. Planet Fitness previously announced that 225 new locations would be opened this year. This figure was increased recently, however, to 225, and CEO Chris Rondeau said that “favorable real estate trends” will aid the company’s growth…
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