Why the Qantas Airways Limited (ASX: QAN) share price could be a good buy after being beaten down by the coronavirus pandemic in 2020.
The post Is the Qantas (ASX:QAN) share price a cheap buy? appeared first on Motley Fool Australia. –
The Qantas Airways Limited (ASX: QAN) share price has had a tough year. Shares in the Aussie airline are down 43.6% to $4.04 per share as of yesterday’s close.
Clearly, the travel industry is one of the hardest hit by the coronavirus pandemic and subsequent restrictions. I’d consider travel alongside the likes of entertainment, energy and hospitality in terms of those doing it tough.
So, the Qantas share price is clearly under pressure. But despite some short-term challenges, is now the time to pickup Qantas shares for a bargain?
Why the Qantas share price could be cheap
For one thing, I think there is implicit government support for the Aussie airline. I can’t see the Federal Government letting Qantas fold given its proud history and the effective duopoly in the Aussie travel market.
Of course, everyone thought much the same with Ansett. But times have changed and the impacts of COVID-19 won’t last forever. I think there is strong implicit support to get Qantas through to the other side of this.
That all combines to help the Qantas share price and the risk-return characteristics. On top of that, I think the company is proactively managing its balance sheet with careful capital management.
That includes the airline parking much of its fleet in the Mojave Desert and looking to move its headquarters out of Sydney.
Cost cutting is key right now given the limited cash coming in the door. The group announced a $1.9 billion equity raising in June to help strengthen its balance sheet and accelerate its recovery from the pandemic.
All of this tells me that the Qantas share price could have a lot of upside with carefully managed downside. No one can predict the future, but I think there is a clear strategy to manage the airline out of this crisis over a 3-year span.
It’s hard to look at the Qantas share price as a bargain based on short-term returns. However, I think the airline can return to its former glory as a leading carrier and strong ASX dividend share in the medium to long-term.
It’s certainly a punt in the current climate, and perhaps I’d wait until the economic picture is more clear in early 2021, but Qantas could be a bargain for $4.04 per share.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.