CNBC's Jim Cramer stressed that investors shouldn't fall in love with a company if it has a poor balance sheet.
Cramer said he became enamored with Walt Disney for the CNBC Investing Club's Charitable Trust, sticking by the company "through thick and thin" even as the company's balance sheet seemed weak and its stock plummeted.
"No matter how fantastic a company might be, do not fall in love with its stock unless you've given serious consideration to its balance sheet, because when the balance sheet's bad, it's like marrying someone with horrible credit — you're going to be paying for that mistake for ages."
According to Cramer, Disney made poor choices that started to weaken its balance sheet over the past few years, including bringing on bad management. Cramer said he grew increasingly frustrated, especially when then-CEO Bob Chapek tried to spin an "abysmal" quarter as a victory.
But after two years of Chapek, Disney brought former CEO Bog Iger back on board, and Cramer said the company has been making progress on its balance sheet since then. He said he still believes in Disney's franchises, and he even bought more of Disney on weakness for the charitable trust. But he cautioned investors against staying in a company that is reporting weak financials.
"Do I think Disney will come back? Yes. But that's not the question," he said. "Why did I buy it so bad? Because I was in love with a piece of paper, something that should never happen."
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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Walt Disney.
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