Should You Buy Qantas Airways Limited Shares Today?

What Happened to the Qantas Share Price?

Qantas Airways Limited [ASX:QAN] lost 2.3% by 2pm today. The company’s stock was trading at AU$2.97 a share. The whole market was higher in early afternoon trading with mixed performances from financials and resources companies. Wall Street was also flat overnight. This gave the Aussie market little reason to perform out of line.

Why Did This Happen to QAN Shares?

Qantas has had an incredible run in the past year. It really all took off in late 2014, generating an incredible 150% gain, far outperforming the ASX 200.

Currently, most analysts have an ‘outperform’ rating on the stock. Investors are betting on a turnaround in the company’s results going forward.

For 2014, the company posted a net loss of over AU$500 million. However, for the first half of 2015, Qantas is expecting a return to profitability of more than AU$300 million.

What has helped Qantas in its turnaround? In a sector sense, a normalisation in the post-Virgin Australia era and the company’s ongoing cost rationalisation have been factors. Several macro factors have also aided Qantas, including a recovery in consumer demand and the dramatic fall in the oil price. These factors will directly result in a fatter bottom line and improved profitability.

What Now for Qantas Airways Limited?

Qantas shares have gone through a momentum cycle in the last 25 days. This means long-only investors and momentum investors cashed in quite a bit on the long trade. Now that this momentum cycle is entering into a more obscure phase, sentiments are starting to reinforce more selling in the market.

A renewed downward pressure may materialise. Another possibility is for the stock to post patchy performances going forward. For short sellers, QAN may become of interest in the period coming up.

There is every reason for long-only investors to book their profits now before a downward trend materialises. In addition, the cost of oil will most likely recover to about US$70 dollars in 2015. This will add to the costs of the firm.

Another problem is the valuation of the stock. There is no reason for the company to see a collapse in its share price; however, periodic corrections are expected.

Ken Wangdong
Emerging Market Analyst, New Frontier Investor

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