This month, Boeing’s 737 Max jets were banned by the United States and 30 other countries after 2 fatal airplane crashes that brought the death toll up to 346 people. After the ban, Boeing stock came tumbling down. As of March 15, the stock price of the Boeing Company (BA) at market close was $378.99. Is this undervalued or overvalued? Is this a good buy or not? Let’s look at some key ratios and numbers to figure out if Boeing is worth it or not.
Boeing’s Debt to Equity ratio of the most recent quarter was 31.44. Warren Buffett prefers Debt to Equity ratio to be 0.5 or lower; he claims that debt can disrupt even the best businesses because it limits flexibility and agility. This ratio raises some red flags since it shows that Boeing is highly leveraged. Boeing has a Return on Equity of 29.46, which is good. However, I think that this number looks good because of all the share buybacks. I would prefer a company that pays off its debts, rather than buy back its shares in order to make the ROE look good.
Boeing’s Current Ratio of the most recent quarter was 1.08. Current Ratio compares Current Assets to Current Liabilities. Warren Buffett prefers companies to have current ratios greater than 1.50. In order to maintain flexibility, the company should be getting in more than what is going out. Since the current ratio is greater than 1.0, I would say the current ratio of Boeing is okay. It has enough oxygen in its system to survive another year.
Boeing has an abnormally high Price to Book Ratio of 631.6. When looking at Price to Book ratio, you are comparing the stock price to what is the company’s net worth per share. In order for a company to be “attractive”, Warren Buffett prefers this ratio to be below 1.50. So, this is another ratio that raises a red flag. Warren Buffett also looks at Price to Earnings Ratio when he is trying to find an attractive stock price. At Boeing’s current stock price of $378.99, the P/E ratio is 21.23. Buffett would prefer P/E ratio to be under 15, if he were to buy this stock.
Boeing had Free Cash Flow (FCF) of $13,531 million in 2018, and 586 million outstanding shares. By assuming an annual growth rate of FCF of 6%, long term growth rate of 3%, and a discount rate of 12%, the intrinsic value per share comes out to $316.93 (Discounted Cash Flow Analysis). At a discount rate of 10%, the intrinsic value per share comes out to $415.47. Assuming a discount rate of 10%, you would find Boeing stock to be attractive. Lastly, by taking into account the FCF for the past 10 years, the expected rate of return if the stock is purchased at the current price of $378.99 is 7.6%. You might find a 7.6% rate of return to be attractive. Personally, I do not find Boeing stock price to be attractive at this level. It is times like these when I remember Charlie Munger’s quote, “It take character to sit there with all the cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.”
Hope you learned a little and found this blog post helpful. We talked about different ratios and numbers that show if Boeing is worth buying or not. Hopefully you got a better idea of the fundamentals of the Boeing Company. As always, you can sign up for our mailing list here. Like us on our Facebook page here. Thank you!
Email us at: superiornorthllc@gmail.com
Superior North LLC’s content is for educational purposes only. The calculators, videos, recommendations, and general investment ideas are not to be actioned with real money. Contact a professional and certified financial advisor before making any financial decisions.
Superior North LLC 