GE Aerospace stock has tumbled into a bear market and is about to form a death cross pattern as investors continue selling amid rising valuation concerns. It dropped to $303 this week, its lowest level since May this year, and 22% below its all-time high.
GE Aerospace stock is about to form a death cross pattern
Technicals suggest that the GE stock may drop further in the coming days. It formed a double-top pattern at $383 and a neckline at $336. A double-top pattern often leads to more downside over time.
The stock has now moved below the neckline of $336, validating this pattern. It is also about to form a death cross pattern, which happens when the 50-day moving average drops below the 200-day moving average. The spread between the two averages has continued to narrow this month.
GE Aerospace has also dropped below the important support level of $306, its lowest level in September. Moving below that level has invalidated the double-bottom pattern, which is a common bullish reversal sign.
The Average Directional Index (ADX) remains above 20. Therefore, these patterns suggest that the stock will continue the downward trend in the coming days. If this happens, the next key level to watch will be at $270, its lowest level in March and April this year.
Profit-taking and valuation concerns
The ongoing GE Aerospace stock crash is not a sign that the company’s business is struggling. Indeed, data shows that its business is thriving, with its backlog continuing rising. Its last earnings report showed that its order growth was 17% in the second quarter, while its revenue growth was 24% to $12.6 billion. Such revenue growth is quite strong for a company in the industrial space.
GE Aerospace’s operating profit soared by 18% to $2.7 billion, while its free cash flow rose to $3 billion. It also continued to receive substantial orders, bringing its revenue backlog to over $280 billion. This growth will likely continue as the global aviation industry remains healthy despite the ongoing jet fuel price surge.
The management expects that its revenue growth will continue. For the third quarter, the expectation is that its revenue will jump by 21% to $42.3 billion, while its operating profit will get to $9.1 billion. The challenge, however, is that the rising cost of doing business may have an impact on its margins.
Another challenge is that its valuation has become highly elevated. Seeking Alpha data shows that it trades with a forward price-to-earnings ratio of 40, much higher than the sector median of 19. On a GAAP basis, it has a forward PE ratio of 36. These numbers are much higher than those of the faster-growing companies like Micron, Nvidia, and SanDisk.
Analysts remain largely optimistic about GE Aerospace shares, with the average target being $386, up by 27% from the current level. Wells Fargo’s David Strauss has a target of $380, while Jefferies target $435. Deutsche Bank has a target of $450.