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Boeing stock rallied 108% since March, but pricy valuations limit the upside

Dow component Boeing (NYSE: BA) stock price saw an impressive 108% share price rally since falling below the $100 level in March for the first time in seven years.

The share price rally accelerated in the last two months as the US federal aviation lifted the ban on Boeing’s flagship jet 737 Max, which was grounded in 2019 after 346 people died in two separate 737 Max crashes. Canadian and European authorities have also lifted a ban on 737 Max.

Boeing stock price performance chart.
Boeing stock performance. Finviz chart

Moreover, the new orders for the flagship plane added to the investor’s sentiments. Ryanair Holdings (NYSE: RYAAY) ordered 75 737-MAX jetliners, while Alaska Airlines (NYSE: ALK) also announced to buy 68 737-9 MAX aircraft with an option of buying another 52 jets in the future.

After massive share price gains, investors are wondering is it a good time to buy Boeing or waiting for a better entry point is a good strategy.

Is Boeing a good stock to buy?

Although shares of the planemaker are still down 34% year to date, Boeing stock valuation increased substantially after shares rallied close to 108% from March low. This is because of a massive decline in financial numbers and dim outlook.

Boeing stock is currently trading around 49 times to earnings compared to the industry average of 27. The shares also look overvalued based on price to book ratio of 1,600 when the industry average is around 3 times to book ratio.   

The company has generated a 30% year over year drop in September quarter revenue while the loss per share came in at $1.39 per share. The company is likely to post similar numbers for the fourth quarter. Moreover, demand for new planes are likely to take a longer time to reach the pre-covid 19 levels, which could continue putting pressure on revenue despite MAX return to service

“The recertification of the MAX and progress with a vaccine are undoubtedly good news,” Redburn analyst Jeremy Bragg wrote.

But Boeing still has to worry about demand, competitive positioning, free cash flow and debt, Bragg said. “Boeing’s share price is no longer supported by its fundamentals.”

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