Shares of Walt Disney (DIS 0.83%) have been trending higher in the past several months. Thanks to improving financial performance and positive market sentiment, the stock has climbed 26% in the last six months. This gain meaningfully outpaces the broader S&P 500.

As of this writing, shares still trade 44% off their all-time high, which was achieved in March 2021. Investors might believe the business still deserves a closer look. Should you buy Disney stock while it's below $120?

Profitability trending higher

Between fiscal 2018 and fiscal 2021, Disney's segment operating income was cut in half (Disney's fiscal year ends in September). That's certainly a troubling data point that helps explain why shares are still trading at a sizable discount to their record.

The company was dealing with a whirlwind of issues. Its historically lucrative cable TV networks are in secular decline due to the rise of streaming video entertainment. Disney did launch direct-to-consumer (DTC) streaming services, but they were posting massive operating losses in an attempt to scale up. And the COVID-19 pandemic temporarily shut down Disney's theme parks and cruise lines.

However, the business appears to now be heading in the right direction. Its DTC segment, which includes Disney+, Hulu, and ESPN+, is now generating positive operating income thanks mainly to cost controls. Management expects the division to post a 10% operating margin (excluding ESPN+) in fiscal 2026, which would be substantially better than fiscal 2024.

The theme parks and cruise lines, although dealing with softer consumer demand in recent quarters, have bounced back nicely since the pandemic. In fiscal 2024, the segment that also includes consumer products reported 5% year-over-year revenue growth, leading to a 4% gain in operating income. In fact, those two figures were both all-time records.

Impossible to replicate

Long-term investors should want to own businesses that possess an economic moat. Having durable competitive advantages helps protect against the threat of competition and new entrants. In essence, the presence of a moat not only indicates a high-quality company, but it also reduces the risk that a business falls by the wayside.

In Disney's case, its intellectual property (IP) is undoubtedly what makes up its economic moat. Decades of building stories and franchises and characters have created immense value. Even better, because Disney has so many consumer touch points, it's able to monetize this IP in various ways, whether at the box office, on your home TV, at a theme park, on a cruise, or with consumer products at retail stores.

No business on Earth has the breadth and depth of IP that Disney possesses. Even if someone had unlimited capital, it would be impossible to copy what Disney has created. That's definitely a fantastic position to be in and one that will benefit the company for a long time.

Think about valuation

Even though Disney shares have been volatile in the past 12 months, they have been trending higher since the summer of last year. However, the valuation is still compelling.

As of this writing, shares trade at a forward price-to-earnings ratio of 20.9. This represents a 6% discount to the overall S&P 500, despite Disney being an above-average company.

According to Wall Street consensus analyst estimates, Disney's earnings per share are projected to grow at a compound annual rate of 10.9% between fiscal 2024 and fiscal 2027. That outlook seems reasonable, but consider that analysts have been revising expectations higher, which could make the current forecast look conservative. Improving bottom-line performance should result in the market becoming more optimistic toward the company, leading to a higher forward P/E ratio.

Based on the combination of a positive earnings trajectory and a low starting valuation, Disney almost looks like a no-brainer buying opportunity while it's below $120 per share.