Thursday, November 1, 2012

Why Disney Is a Classic Rule Maker, and Why It Should Be in Every Investor's Portfolio

Disney. Is there a better-known entertainment franchise anywhere? Who on the planet doesn't know Mickey, Minnie, or Goofy?

And now, with the purchase of Lucasfilm, which will give Disney the rights to everything Star Wars and Indiana Jones, if Disney wasn't the world's premier entertainment force before, it is now.

And if there's any entertainment company that could justifiably be called a "necessity," it's the House of Mouse. People need their fix, kids and adults alike.

Gross margin
Gross margin indicates manufacturing efficiencies, brand power, and pricing power. The ideal gross margin for a Rule Maker is 60%.

Net-profit margin
Net-profit margin dictates how many pennies a company gets to keep from every dollar of sales. Tom Gardner likes to see net-profit margins of 10% for his Rule Makers.
Disney's net-profit margin TTM is a more than healthy 13.18%.

The Flow Ratio
Disney hits a lovely, solid FF of 0.93. Well done, Mickey.

Your familiarity and interest
Everyone knows Disney, and everyone knows how they make money. They make movies, you pay to see them. They make related merchandise, you buy it. They run theme parks, and you pay big money for you and the kids to spend the day. A dead-simple business model that you, and most of the planet, just can't resist: quite possibly the perfect investment.

Disney remains a classic Rule Maker. The House of Mouse is clearly a dominant force in the entertainment industry.

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