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How Disney's Dead-Mouse Bounce Couldn't Stop a Market Fire Sale

Posted at 3:57 p.m. EDT on Thursday, Aug. 20, 2015

D-Day, Aug. 4, a date which will live in infamy. I know I am mixing up World War II battles, but when it comes to stock market battles, D-Day, the Day that Disney (DIS - Get Report) reported, will indeed live in growth stock infamy and we have been paying the price ever since, including today.

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What happened with that? I think you can, at least for this moment, say that was the day the growth music died. You see, Disney's stock had become the one must-own growth stock of the year. It was coming into that fated day when it reported its quarter, the best-acting stock in the Dow Jones Industrial Average. As they say on best of U.S. aircraft carriers, as well as at the shuffle board table at the Summit Elks, Disney was comin' in hot, too hot. It had been up five out of six days going into the report, creating a monumental hurdle for any company, let alone one as big as this behemoth $200 billion dollar bruiser. Or at least it was back then, some 22 points ago.

It sure didn't seem like a day that would live in infamy.

"We're very pleased with our performance in the third quarter with record net income and diluted earnings per share of $1.45 up 13% from the prior quarter," CEO Bob Iger said in the release. "The strong results across many diverse lines of business demonstrate the power of our unparalleled brand franchises and creative content." Indeed they did, as the 3-cent earnings beat was clean as a whistle.

It seemed liked the perfect prelude to a triumphant conference call that laid out the roadmap of a remarkable movie slate, strong cheap-gasoline-aided theme park results and the typically excellent strength of television results, especially ESPN. Star Wars! Shanghai Disney! What's not to love?

Instead, it turned out to be an epic ambush for the bulls of unbelievable proportions, one that left the stock down 14 points in two days before a brief bounce set in, a relief rally that was, in retrospect, a dead-mouse bounce.

That's because, once again, today, the cascade continued with a downgrade from a prominent analyst precipitating another six point or 6% decline. The culprit? Just a few tiny words, words like "we now expect domestic cable affiliate revenue to fall a bit short of our previous expectations," spoken by the chief financial officer and "ESPN has experienced some modest sub losses," uttered by Iger himself.

Ever since that conference call, the only cartoon character that I can think about when Disney pops into my mind is Humpty Dumpty because it seems that all the Street's horses and all the Street's men cannot put Humpty Dumpty back together again.

Now, here's the ironic thing about the whole decline. There have been no number cuts. There have been no reductions in what we think Disney can earn this year or next year. If anything, given that the company is probably buying back stock hand over fist, the earnings per share are probably going to be too low, maybe way too low. The amount of the shortfall in subscriber losses is so minor that you may not even see it. Yes, Disney has that much going for it.

But it doesn't matter. Because Disney was, in retrospect, priced to perfection and it isn't perfect any more. And because it isn't perfect any more, then maybe there's not much perfect out there. If a high-quality company with fabulous management and so many fantastic catalysts -- including still lower gasoline than when it reported and more Star Wars theme park space than we thought -- can fall to $100 from $122 in a matter of a couple of weeks on NO NUMBER CUTS then how about what could happen to...