Shares of Walt Disney (NYSE: DIS) have fallen more than 10% over the last month. But investors should think twice before they "buy the dip." Recent results simply aren't encouraging enough to justify the stock's current valuation. Furthermore, the company's streaming transformation in its content business has yet to prove itself.

Sure, management recently reinitiated a dividend, reflecting its confidence in a strategic restructuring and a reinvigorated focus on growth. But investors shouldn't automatically assume that management's confidence is a buy signal. Buying the entertainment stock at its current valuation may simply require too much speculation.

Unimpressive growth

The first major problem at Disney is its anemic top-line growth. Total revenue in its most recent quarter (fiscal Q2) rose just 1% year over year.

Weighing heavily on its revenue performance was a 5% decline in entertainment revenue. The segment's 13% year-over-year growth in direct-to-consumer revenue wasn't enough to offset an 8% decline in linear networks revenue and a 40% drop in content sales, licensing, and other entertainment revenue.

Sports revenue, which includes the company's lucrative ESPN operation, rose just 2% during the quarter.

The experiences segment, which includes sales from its domestic and international parks and its consumer products, rose 10%. Key to this growth, however, was the temporary boon of the continued rebound of global travel as the COVID pandemic fades further into the rearview mirror. It wouldn't be surprising to see this growth slow down.

Disney's streaming business could let investors down

The hope Disney investors are likely clinging to is the company's direct-to-consumer business. Disney has finally shown that this subsegment, which is seeing double-digit year-over-year revenue growth, can contribute to profitability. Direct-to-consumer, which includes revenue from streaming services services like Disney+, Hotstar, and Hulu, swung to profitability in fiscal Q2. And its operating income was $47 million, up from a loss of $587 million in the year-ago quarter.

While it's great to see improvement, it should be noted that this translates to an operating profit margin of less than 1%. Disney may need significantly more scale for this segment's operating margin to eventually rival the operating margin for its linear networks (traditional TV), which falls somewhere between 25% and 35% in most quarters.

If the direct-to-consumer business's revenue growth rate or operating margin expansion proves to be underwhelming, this catalyst could ultimately be a letdown.

The stock looks expensive

The final reason to avoid the stock is the simplest. Given the quality of Disney's assets, from top-notch movie franchises to irreplaceable theme parks, investors shouldn't expect to buy shares on the cheap. But given the company's slow top-line growth and the uncertainty surrounding its streaming business, they shouldn't pay an expensive valuation multiple either. Trading at 24 times management's forecast for fiscal 2024 free cash flow, shares simply aren't reasonably priced.

Before pulling the trigger on shares, it may be wise to wait for either a bigger pullback in the stock price, or stronger top-line growth and more evidence of a catalyst for the stock from its nascent streaming business. Shares may end up doing reasonably well from here over the long haul, but the likelihood of them outperforming the S&P 500 may be low.

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Daniel Sparks has no position in any of the stocks mentioned. His clients may own shares of the companies mentioned. The Motley Fool has positions in and recommends Walt Disney. The Motley Fool has a disclosure policy.

Why I'm Staying Away From Disney Stock Even After Selling Off was originally published by The Motley Fool