Boeing trades at $217.39 and has moved in lockstep with the market. Its shares have returned 20.2% over the last six months while the S&P 500 has gained 15.5%.

Is there a buying opportunity in Boeing, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Boeing Will Underperform?

We're swiping left on Boeing for now. Here are three reasons why BA doesn't excite us and a stock we'd rather own.

1. Sales Volumes Stall, Demand Waning

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.

Over the last two years, Boeing failed to grow its units sold, which came in at 150 in the latest quarter. 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 accelerate growth, factors that can hinder near-term profitability.

2. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

While Boeing’s free cash flow broke even this quarter, the broader story hasn’t been so clean. 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 6.9%, meaning it lit $6.91 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 $8.54 billion of cash over the last year, and its $53.83 billion of debt exceeds the $22.97 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. That said, the stock currently trades at 155.3× forward P/E (or $217.39 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle.

Stocks We Like More Than Boeing

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