If you've been reading the newspapers, you would already know Qantas Airways Limited (ASX: QAN)'s reputation is in the toilet.
Just some of the recent scandals have included allegedly selling seats on cancelled flights, illegally sacking 1,683 staff, backflipping on its plan to pocket $500 million worth of customer credits, and currying favour from politicians and family members with luxury lounge access.
Understandably, the share price has nosedived — pun intended — more than 23% since 25 July.
So does this mean the red kangaroo is now a red-hot buy for investors looking for a bargain?
Image source: Getty Images
'Asia's worst performing airline stock'
Firstly, it's worth noting that 12 out of 15 analysts currently surveyed on CMC Markets still rate Qantas shares as a buy.
But that sentiment might be starting to turn.
Nine newspapers reported on Tuesday that the aviation stock has copped a downgrade to sell from CLSA equity analyst Justin Barratt.
"[The downgrade is] the first since the business' reputation plummeted after a shocking month.
"Qantas is Asia's worst performing airline stock this month, as first reported by Bloomberg."
Shaw and Partners portfolio manager James Gerrish was asked on a Market Matters Q&A whether his team would now buy Qantas shares on the dip.
The bad news for the airline is that he doesn't think it's cheap enough yet.
"We aren't fans of Qantas around $5.30, even after its recent 24% pullback."
Qantas shares closed Tuesday at $5.16 apiece.
Upgrade for passengers, but a downgrade for investors?
The harsh reality for Qantas is that it has a lot of spending ahead of it to improve its customer service, in order to rebuild its tattered image.
"The last 5 to 10 years has seen Qantas focus on profitability at the cost of the customer experience," said Gerrish.
"Short term decisions and a lack of investment in [its] fleet will provide a headwind from here."
That's great for those of us travelling, but not necessarily a positive for investors.
"The next few years will be spent [focusing] more on the customer, which is good for us, but not as good for profitability.
"Share prices follow earnings over time, so we are neutral observers until further notice, seeing better value/opportunities elsewhere — for now at least."
