(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Boeing Co.'s (BA) stock has been one of the hottest stocks in the market over the past year, up nearly 85%. The strong performance has easily outpaced the S&P 500’s climb of 11.7%. An analysis of Boeing's stock chart suggests shares may fall by 14% in the coming weeks, to roughly $295 from its current price around $342.
Before its recent rebound, shares of Boeing initially fell by about 5.5% after reporting strong quarterly results, with the company beating on both the top and bottom lines. However, the worst may not be over for the stock, because not only are the technicals pointing to a decline, but the stock is not cheap when compared to some of its peers. (For more, see also: Boeing Stock Hits Turbulence on China Tariff War.)
The 15-minute chart shows the stock has a technical downtrend in place since the beginning of March, while facing a resistance level around $346. It gives the stock two levels that could act as stiff resistance standing in the way of any further rise. The first level of technical support currently sits around $320, about 6.5% lower. If that level should not hold, the stock could fall all the way towards $295, a drop of about 14%.
The relative strength index (RSI) has also been trending lower, since peaking well above 80 in early January. The RSI would need to hit a level below 30 to indicate the stock has become oversold; it is currently at 53. Additionally, the RSI has been following the general direction of the stock price. Another potential sign of a bottom would be a divergence, where the stock may be falling with a rising RSI.
Boeing shares do not come cheap when considering they trade at 20 times 2019 earnings estimates of $17.09 per share. Competitors like Lockheed Martin Corp. (LMT) and Northrop Grumman Corp. (NOC) both trade at about 17 times one-year forward earnings. Both stocks have fallen hard over the past couple of weeks, with each down about 12 to 13% from their 2018 highs.
BA PE Ratio (Forward 1y) data by YCharts
Boeing's earnings are forecast to soar by 42% in 2018 to $14.67 per share, on revenue growth of only 4.5%. However, that earnings growth is expected to slow materially in 2019 to just 16.5%, and then 14.5% in 2020. Revenue growth is expected to stay steady around 5 to 6% over the next two years. (For more, see also: Goldman & Boeing: Drivers of 2018 Dow Gains.)
The bearish technical setup and an expensive stock may be a good enough reason for shares of Boeing to fall over the short to medium term.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.