Boeing (NYSE:BA) Stock: Cleared for Takeoff or Still Risky?

At one time, The Boeing Company (NYSE:BA) was the pride of the United States. The large multinational corporation helped to change the aviation industry forever and became the leader for commercial airplane sales worldwide. However, the company fell on rough times in recent years and experienced a massive drop in share price during the coronavirus market crash. Although there still isn’t a lot of good news to report for Boeing, the share price broke out from its consolidation area and the stock has been seeing a massive uptick in volume lately.

If you are a trader, you love the price action for Boeing right now due to the huge price swings that seem to occur on a daily basis. However, some brave investors are betting on a strong recovery for Boeing and buying the stock for the long term. You can’t deny the power of the Boeing brand and the constructive price action if you are a trader, but is Boeing still too risky to consider buying for a long term investment play? Let’s take a deeper look at Boeing stock below to gain some additional clarity on the company’s prospects going forward.

Cleared for Takeoff?

In early June, Boeing broke out of a tight price range and made it’s way up to $230.50 per share. There was some positive news in April when the company announced it would resume commercial airplanes production. However, after a very weak earnings report which saw the company decrease Q1 revenue by 26% year-over-year, you might be scratching your head trying to figure out this recent move up.

Perhaps one of the biggest reasons why Boeing rallied on essentially no news has to do with the overall market sentiment. During the end of May and the beginning of June, Boeing was rising on the optimism related to air travel as the world started to reopen. However, volatility returned in recent trading sessions and Boeing has seen sharp swings up and down as a result. Whenever you see a stock like Boeing surge to a 58% gain in just six trading sessions on no news, you should be cautious as the rise was likely driven by pure speculation and short-term sentiment. It seems that Boeing is more of a trading vehicle at the moment and that the stock has not been cleared to takeoff back to 52-week highs.

Risks Are Numerous

If you bought Boeing back in March, the chances are good you have experienced prolific gains. The stock reached a low of $89 back in March and then doubled in price. However, if you are a long-term investor that wants to buy Boeing stock right now, it might be best to err on the side of caution. There are considerable risks associated with Boeing that cannot be ignored.

The biggest risk for Boeing has to do with the uncertainty surrounding the commercial airline and travel industry as a whole. We simply don’t know how quickly the demand for air travel will come back as the world tries to deal with the global health crisis. If people aren’t flying or remain fearful of flying, the demand for new Boeing airplanes will be nonexistent. In May alone, Boeing logged 18 order cancellations for their planes and currently has its lowest backlog of orders since 2013 at 4,744 airplanes. With sales seriously slumping, it’s hard to get excited about this stock over the long term.

You also have to remember the 737 Max issues, which is one of Boeing’s best selling planes that has been grounded since last March after two deadly crashes. Boeing has been dealing with an ongoing criminal probe and investigation by the Transportation Department as a result of the crashes. Although the 737 Max might be back in the air shortly, these are the types of headlines that are downright frightening for long-term investors.

Grounded for Now

Although Boeing is a historic company with massive market share, the company faces a lot of big hurdles to overcome in the next few years. The fact that Boeing CEO David Calhoun publicly stated that a major U.S. airline will most likely go bankrupt should tell you all you need to know about the current state of the industry. With so much uncertainty in the commercial airline sector, high debt levels, and the 737 Max issues, investors should understand that the risks likely outweigh the rewards at this point. If you are interested in adding shares of Boeing, it’s probably best to sit on the sidelines until we have more clarity about how the airline industry is going to recover.