Everyone knows the Walt Disney Company (NYSE:DIS)The entertainment giant has been around for more than a century, creating memories for children and parents alike. But the House of Mouse is changing, and these days it places a strong focus on streaming media.

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

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

Let’s find out.

Weighing two stocks based on the numbers

Data source: Morningstar, August 22, 2024. TTM = last 12 months.

Disney is the larger entertainment empire in this comparison, and it’s not a close race. Sphere Entertainment’s business operations would look like a rounding error in Disney’s financial reports.

The companies are difficult to compare in terms of valuation. Disney generates huge cash profits and its adjusted earnings were positive even during the darkest days of the coronavirus lockdowns. This stock trades at a modest valuation of 23 times earnings and 21 times free cash flow.

In contrast, Sphere is unprofitable by most standards. The state-of-the-art Las Vegas venue is starting to generate revenue, but this division is still not profitable – even after extensive adjustments.

However, the few valuation metrics that are relevant to Sphere Entertainment often make the stock seem affordable. Its price-to-sales (P/S) ratio is 1.7, just below Disney’s 1.8. And if you weight the companies by the book value of assets like theme parks and giant digital spheres, Sphere Entertainment’s enterprise value to assets (EV/A) is 0.4. From that perspective, Disney, with an EV/A ratio of 1.1, looks downright expensive.

Future business plans

Sphere Entertainment plans to build a global network of state-of-the-art entertainment venues modeled after the Las Vegas arena of the same name. It’s an ambitious but risky venture. These high-tech buildings are expensive, and the capital costs of financing their construction will eat into the company’s income statement in the form of depreciation charges for years. Given its $573 million in cash reserves, the company can afford a few more years of cash-burning operations, but 61% of its $1.37 billion in long-term debt must be paid off next year. With interest rates so high, this isn’t the best time to refinance large loan balances.

The story continues

Perhaps Sphere Entertainment deserves its low valuation multiples. Investors see financial risks in this growth-oriented business plan.

Meanwhile, Walt Disney is finding its way into an increasingly digital entertainment age. Its media streaming services posted a modest operating profit in the recently reported third quarter, while successful sequels Inside Out 2 And Deadpool and Wolverine suggest that consumers remain addicted to the company’s content portfolio.

I hope you noticed my ironic attitude to the idea that Disney stock looks expensive. Its price to free cash flow, P/S and price to book ratios are well below averages among S&P500 (SNPINDEX: ^GSPC) Members. This is a safe stock that you can buy in almost any economy and expect good long-term results.

So which stock should you buy today?

There may be a time and a place to buy Sphere Entertainment stock, but only in small and speculative amounts. This exciting growth story could derail at any time, and you’ll likely see similar concepts popping up en masse if the company’s ideas for digitized venues prove profitable in the long run.

And you can’t really go wrong with Walt Disney. The company has long been a key part of my own stock portfolio and I wouldn’t hesitate to start a new position now – as I said earlier, Disney stock is quite affordable and I have high hopes for the company’s online entertainment plans.

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

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Anders Bylund holds positions in Walt Disney. The Motley Fool holds positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.

Best Stock to Buy Right Now: Sphere Entertainment vs. Walt Disney was originally published by The Motley Fool