Down 45%, Is JetBlue Stock a Buy?

Everything seems to be going wrong for JetBlue Airways (NASDAQ: JBLU) these days. After all, airline stocks aren't the best place for investors right now, and JetBlue is doing worse than any of them, down 45% on a year-to-date basis.

JetBlue stock is so depressed that it's essentially a penny stock now, which is the moniker given to stocks that has fallen below $5 per share.

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But now that JetBlue is down a whopping 86% from its all-time high, is it time for savvy investors to move in to buy a depressed stock on the dip? Or is this a case of catching a falling knife?

In JetBlue's case, it appears to be much more the latter.

Earnings paint a sad picture

If you had any hope in JetBlue, it probably vanished when the company issued its first-quarter earnings report on April 29. Revenue was down 3% from a year ago, falling to $2.14 billion, resulting in a net loss of $208 million. Earnings per share came in at a loss of $0.59, which was 2 cents better than analysts expected -- but still awful.

Management said it was expecting second-quarter revenue per average seat mile to drop between 3.5% and 7% from the same quarter a year ago. In addition, JetBlue withdrew its full-year guidance.

It gets even worse when you compare JetBlue to its major airline competitors. It's at the bottom of the barrel both for year-to-date performance and earnings per share.

JBLU Year to Date Total Returns (Daily) data by YCharts

I'm also not convinced that JetBlue has what it takes to turn this around anytime soon. The Middle East remains at a flash point with Israel, Iran, and the United States right in the middle of it. Any disruption of the flow of oil -- such as the closure of the Strait of Hormuz -- would have a dramatic impact on oil prices.

JetBlue estimates that it will pay between $2.25 and $2.40 per gallon for fuel this quarter. But unlike some air carriers, the company makes it a practice not to hedge fuel costs, instead choosing to buy at market prices. JetBlue believes its practice helps it decline from any declines in fuel prices. But if the prices go up, it is particularly vulnerable.

Image source: Getty Images.

A key investor is losing patience

Nobody likes to lose money, but investors also realize that it's part of the process -- particularly if you are a buy-and-hold investor. But nobody's willing to take losses with no hope of a return.

So it's notable that Vladimir Galkin, who with a 10% stake in JetBlue stock is the company's second-largest investor, says he's thinking about pulling out. He told Reuters: "I am underwater a little bit and just going to have to hold on to it. I don't want to say for as long as it takes, obviously, but maybe for another year."

Wall Street tends to agree. The consensus opinion on Wall Street, according to Yahoo! Finance, is that JetBlue's price will fall before it recovers, and no analysts gives it a buy rating.

The bottom line

The airline industry can be challenging. Aircraft are tremendously expensive, they require constant maintenance, and labor costs are rising, which puts more pressure on airline profitability. In addition, airlines always face pressure from the consumer side, as passengers are very sensitive to price increases and there's always a competing airline looking to undercut the market.

Turning specifically to JetBlue, there's a lot of red flashing warning lights. Between its underperformance compared to the rest the market, the challenging state of airline stocks in general, economic uncertainties, volatility in the fuel market, analyst sentiment, and the public concerns of a top investor, any investor would be wise to take a step back.

And if Galkin follows through with his plan to exit his position next year should the stock not turn around, that will put even more downward pressure on JetBlue stock. Galkin holds about 35 million shares and his departure would be like a no-confidence vote on JetBlue's future.

JetBlue is a struggling penny stock and it's likely going to remain that way for some time. Best to stay away from this one.

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Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool recommends Delta Air Lines and Southwest Airlines. The Motley Fool has a disclosure policy.