When shares of a company go oversold, for investors, it can be an opportune time to buy on the dip.
One way to gauge when there’s been excessive selling is to rely on the Relative Strength Index (RSI),
which looks at trading activity over typically the past 14 trading days. The more bearishness there has
been, the lower the RSI number gets. When it falls below 30, a stock is considered to be oversold.
That’s where shares of Walt Disney (NYSE:DIS) are today. At an RSI of 28, it has been under significant
pressure of late. Year to date, it has fallen 29% as investors have been dumping it, along with many
other growth stocks. Not only is the company facing some political adversity in Florida, but concerns
around streaming stocks have been growing with Netflix (NASDAQ:NFLX) recently reporting a
disappointing quarter where it fell well short of expectations and even posted its first decline in
subscriber numbers in a decade.
Whether or not that means Disney is in trouble, is a whole other story. After all, its business is broader
and includes theme parks, which could get a boost this year as the economy returns to normal. But at a
price-to-earnings multiple of 65, the stock certainly doesn’t look cheap, even with the sharp decline in
price.
For long-term investors, however, this could still be a quality stock to own. Disney hasn’t traded this low
in nearly two years and its business will likely generate stronger results later this year. And for that
reason, it could be a great time to load up on the stock today.
