In a sliding market, Boeing has defied the odds, trading up to $183.12 per share. Its 18.5% gain since November 2024 has outpaced the S&P 500’s 2.9% drop. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is there a buying opportunity in Boeing, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Boeing Will Underperform?

Despite the momentum, we're sitting this one out for now. Here are three reasons why we avoid BA and a stock we'd rather own.

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 130 in the latest quarter, and they averaged 7% 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 8.8%, meaning it lit $8.76 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 $12.67 billion of cash over the last year, and its $53.62 billion of debt exceeds the $23.67 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

We cheer for all companies making their customers lives easier, but in the case of Boeing, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 25.9× forward EV-to-EBITDA (or $183.12 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward a top digital advertising platform riding the creator economy.

Stocks We Like More Than Boeing

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