As of mid-February 2016, shares of The Boeing Company (NYSE: BA) have underperformed the broader market over the previous 12 months. While the S&P declined by 11.3% between February 2015 and February 2016, Boeing's stock declined by 21.4%. Boeing's stock performance over the previous 12 months was also poor compared to the company's main publicly traded competitors in the large-cap aerospace and defense industry. Northrop Grumman's share price increased by 12.6% and Lockheed Martin's increased by 8.3%.
Economic malaise in China is largely to blame for the poor stock performance of Boeing, a company that otherwise has strong fundamentals and good valuations. Despite current troubles, analysts within the company have recently revised their outlook for Chinese demand over the next two decades upward and, as a result, many investors are still bullish on the company despite a bad year in 2015.
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Economic Woes in China
Boeing's lackluster performance in 2015 compared to the broader market and the company's peers stems largely from slowing economic growth in China. Commercial aircraft, a product for which China is the world's second-largest market, comprises a large segment of Boeing's business. While the Chinese government reported 5 to 7% economic growth for 2015 -- which is still low compared to the double-digit growth the country had been logging for decades -- many analysts peg the real number at closer to 1 or 2%.
Along with its economic growth slowing, China's currency, the yuan, has declined against the U.S. dollar by over 8% from 2014 to early 2016. As a result, U.S. companies such as Boeing that conduct a lot of business in China have seen their revenues diminished as a result of the exchange rate between the two countries.
Boeing is optimistic for an economic rebound in China and for the country's air cargo demand to rise. It estimates Chinese economic growth to return to an annual level of 5 to 6% over the next two decades and for its air cargo demand to increase by 7% per year. As of 2016, the company splits market share in China 50/50 with the privately owned Airbus. The company is taking steps to increase its presence in China and build its market share.
Boeing has strong fundamentals that position it for long-term success despite short-term stock troubles. The company reported a return on equity (ROE) of 69% for 2015. This figure measures how efficiently management is able to generate earnings from the money investors put into the company. Most analysts consider a double-digit figure as strong, which makes Boeing's figure exceptionally strong.
The company's net margin has remained strong and steady since 2010 and stands at 5.4% as of 2015. Though the company's net income dropped slightly from 2014 to 2015, for reasons described above, its earnings of $5.2 billion still represent its strongest year ever other than 2014.
Boeing's operating cash flow has increased every year since 2010 and, as of 2015, stands at $9.4 billion. Its current ratio, which compares current assets to current liabilities and indicates the company's ability to pay its upcoming debts on time, is 1.35. Most analysts consider a figure of 1 to 1.5 as healthy.