Boeing has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 10.2% to $185.62 per share while the index has gained 12.2%.
Is now the time to buy Boeing, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
We're swiping left on Boeing for now. Here are three reasons why there are better opportunities than BA and a stock we'd rather own.
Why Do We Think Boeing Will Underperform?
One of the companies that forms a duopoly in the commercial aircraft market, Boeing (NYSE:BA) develops, manufactures, and services commercial airplanes, defense products, and space systems.
1. Demand Slipping as Sales Volumes Decline
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Aerospace company because there’s a ceiling to what customers will pay.
Boeing’s units sold came in at 57 in the latest quarter, and they averaged 9.4% year-on-year declines over the last two years. This performance was underwhelming and implies there may be increasing competition or market saturation. It also suggests Boeing might have to lower prices or invest in product improvements to grow, factors that can hinder near-term profitability. 
2. Cash Burn Ignites Concerns
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
Boeing’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 9.6%, meaning it lit $9.57 of cash on fire for every $100 in revenue.
3. Short Cash Runway Exposes Shareholders to Potential Dilution
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Boeing burned through $14.31 billion of cash over the last year, and its $53.86 billion of debt exceeds the $26.28 billion of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.
Unless the Boeing’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.
We remain cautious of Boeing until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.
Final Judgment
Boeing doesn’t pass our quality test. That said, the stock currently trades at 864× forward price-to-earnings (or $185.62 per share). This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there. We’d recommend looking at the Amazon and PayPal of Latin America.
Stocks We Would Buy Instead of Boeing
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