Boeing (BA) was last year's biggest Dow Jones Industrial Average gainer. It recently hit a new all-time peak north of $371. Wednesday, March 14, however saw BA trend downward again taking a large chunk out of the price-weighted industrial average. At one point on Wednesday BA alone, accounted for more than 100-points of the DJIA's decline.
Other than the tariff news, which could push imported steel prices higher, Boeing has not suffered any bad news. The company posted record earnings per share in 2017 and appears on track for another new all-time profit high this year. BA's dividend was boosted in then first quarter. It's now been increased in each year since 2012.
Is the market crazy? Should investors be lining up to 'buy the dip'?
Let's go to the data to find out.
From 2010 through 2017 BA carried an average P/E of just 16x. It typically yielded about 2.50% during those eight years.
At its year-to-date peak of $371.60 the stock fetched 26.4x forward earnings while offering only a 1.84% current yield. That meant buyers were ponying up the highest valuation for Boeing in more than a decade. They also settled for the lowest yield since 2013.
Unless you like paying more than everybody else for the same thing, those metrics should have been looked at as warning signals. No wonder the stock has retreated.
While BA's long-term trend has been very positive there were two previous "should have sold" moments in recent times. Momentum traders who chased BA near the end of 2013, the last time the yield was lower than currently, paid as high as $142 per share.
Within months BA had dipped to the $116s. By February of 2016, the stock was available for under $103. Those who paid more than 19x BA's trailing earnings in late 2013 ended up suffering through two and a half years before finally breaking permanently into profitability.
An interim move to near $159, in early 2015 at 21.3x forward estimates, spent 18 months on the tarmac before finally lifting off.
How long might it take to work off Boeing's present-day overvaluation?
Assigning the firm an above-average 18x multiple on this year's consensus estimate of $14.07 would only support a 12-month target price of $253.26. That same multiple on BA's 2019 projected EPS would only justify a bit above $300.
Reverse engineering Boeing's current $6.84 annual dividend rate to 2.50% leads to a year-ahead goal of just $273.60.
Where's the upside?
The green-starred "best entry points" since 2010 clearly illustrate the numerous opportunites which investors had to own BA at much more reasonable valuations. Boeing briefly got to a single-digit forward P/E at its early 2016 nadir.
Making good decisions is easy if you pay attention to value, rather than momentum. Most analysts are loath to downgrade stocks which have been running up strongly.
Value Line's most recent full page report on BA shows how that works. With BA at $364.64 their system called it a buy for near-term (defined as coming 12-month) performance. It also carried Value Line's highest rank for "safety." Note that "safety" refers to balance sheet strength rather than stock price movements.
At the same time they were touting the stock for traders Value Line noted that BA was already above the low end of their three- to five-year (2021 - 2013) price target range which assumed EPS would more the double from 2017's final tally.
Value Line's Ian Gendler went as far as cautioning readers that BA was expensive and that profit-taking might be in order.
What are subscribers to that service supposed to do when the research page carries both buy and sell advice on the same stock at the same time?
Morningstar's investment opinion is unequivocal. On Wednesday, Mar. 14, 2018, it listed BA with a 2-star, out of 5, sell rating. The called Boeing overvalued and indicated present day fair value was $284.
Even that $284 valuation, based on 20.2x forward earnings, looks a bit optimistic based on Boeing's actual past trading history.
If you own Boeing shares the risk/reward proposition, even at $332 or so, looks pretty dicey. It is not too late to sell. You will almost certainly be rewarded with a later chance to reenter the position at a much more favorable price.
(This article originally appeared on Real Money Pro at 7:00 a.m. ET on March 15. Click here to learn about this dynamic market information service for active traders and to receive Paul Price, Bret Jensen and others.)