What happened

Shares of TransDigm Group (TDG -1.18%) fell 10.6% in January, according to data provided by S&P Global Market Intelligence, despite not a lot of company news. Investors are still grappling with how to think about commercial aerospace suppliers as the pandemic hopefully subsides, and there wasn't a lot of reason for optimism as the month went on.

So what

TransDigm is a diversified manufacturer of parts for military and commercial aerospace applications, but the majority of its profits come from spare part sales to airlines and commercial operators. The stock lost more than half of its value in the early days of the pandemic, but slowly regained most of what it lost as 2020 progressed.

A plane under construction in a hangar.

Image source: Getty Images.

Entering 2021 it is hard to get a gauge on how quickly airlines will see travel demand rebound, and what that will mean for earnings at companies like TransDigm that count on airlines as customers. But with daily travel stats falling off in January following a holiday season uptick, there aren't a lot of reasons for optimism.

TransDigm did receive a mid-month downgrade to neutral at Bank of America on valuation concerns, but analyst Ronald Epstein did raise his price target to $670 per share from $550, providing nearly 15% upside potential compared to its price on Feb. 2.

I believe the downward pressure had more to do with investor pessimism about the speed of aerospace recovery. Note that shares of both airplane maker Boeing and Heico, a parts supplier often compared to TransDigm, followed a similar trajectory for the month.

TDG Chart

TDG, BA, and HEI data by YCharts

Now what

It is impossible to know how quickly a recovery will happen, but if you believe travel demand will eventually bounce back and have the patience to ride out the turbulence, there seems to be no reason not to buy TransDigm right now. For years, critics of the company questioned whether its high debt levels would sink it during a downturn, and wondered whether its software-like 40%-plus margins were sustainable.

We've just gone through the worst downturn in aviation history, and TransDigm not only survived but had enough cash on hand to announce a $965 million acquisition. And the margins remained rock-solid through the downturn, in part because nearly 80% of TransDigm's total costs are variable. For long-term holders, there is a lot to like about TransDigm right now.