2 Charts You Should See Before Investing in Jet Airways - Profit Hunter by Equitymaster
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2 Charts You Should See Before Investing in Jet Airways

Nov 19, 2018

Rahul Shah, Editor, Profit Hunter

After being grounded for a good part of the year, Jet Airways has bounced back and how.

The stock has doubled in the last 45 days alone and barely looks done yet.

Those contemplating taking the plunge should do well to go through a couple of charts.

Here's the first one: The share price chart of Jet Airways from as far back as I could get the data for.

Jet Airways Share Price: Failing to Take Off

Two things stand out for me.

  1. The company has been a wealth destroyer - a big one at that - for anyone who would have invested in the company at the start of the period.

    The market value of the company is down to a mere 25% of what it commanded at the start of the period.

    For perspective, just to break even on his investment, the stock will have to go up at least 4x from the current levels.

  2. This is not to say that the company hasn't created any wealth at all.

    Those lucky to get into the stock when it was making its multi-year lows have certainly been rewarded with strong gains over the next few months.

    But this is where the problem is. The highs have come just as fast as the lows. There are hardly any 2-3 year stretches where the stock has given positive returns.

    Therefore, for a long-term investor, whose minimum time horizon is two years or more, investing in the counter has been a painful exercise.

The second chart below throws light on why this has been the case.

Jet Airways: Bleeding Red

On a consolidated level, the company has bled in nine of the last eleven fiscals. In other words, it has been able to keep its bottom line in the black for only two out of the last eleven years.

Airlines is a brutal business. There are always plenty of cockroaches in the kitchen. If it isn't the high capital investments that are gnawing away at your margins, it is the price war that's making life difficult.

If it isn't the high crude oil prices you are battling, it is the recessionary economy you are up against.

You are always fighting battles on many fronts simultaneously. And while most companies win a battle or two, they ultimately end up losing the war.

Jet Airways is no exception. Which is why if you are thinking of loading up on the stock in view of its stupendous rise of late, think again.

A stock trading cheap needs to be considered only on the basis of its earnings strength and the strength of its balance sheet.

Buying it just because it is a potential takeover candidate is more speculation than investment in my view.

And such speculative acts are outright dangerous for the long-term health of your portfolio. Because while you may get the odd one right, you may end up on the wrong side more often than not.

Good Investing,

Rahul Shah
Rahul Shah (Research Analyst)
Editor, Profit Hunter

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