The aerospace giant Boeing (BA -0.74%) fascinates investors, because it's either a fantastic value opportunity wrapped up in a "self-help" story or a troubled company whose most significant challenges are yet to come. Here's what you need to know before buying the stock.

The bulls' case for the stock rests on the idea that things can hardly get worse for the company. In addition, so much pessimism has been built into the stock that all it would take is some good news in the coming year and the stock could fly. The argument rests on three points.

Commercial aviation remains in recovery mode

First, the commercial aviation market is continuing a multi-year recovery as flight departures return to pre-pandemic levels. Meanwhile, Boeing has a backlog of 3,365 Boeing 737 aircraft, its narrow-body workhorse of the skies. The wide-body 787 has a backlog of 405 aircraft, and the wide-body 777 and 777X have a combined backlog of 224 aircraft. There's no issue with end demand at Boeing; given its position as one of only two major players (Airbus also has issues ramping production), the company has every opportunity to grow. For the moment, other manufacturers such as COMAC, Irkut and Embraer are mainly regional players. The difficulty of breaking into the Boeing/Airbus duopoly was highlighted by the huge ramp in sales in of the Airbus A220, after it was bought from Bombardier -- formerly known as the Bombardier C-Series.

Boeing is a self-help story

Second, Boeing's problems are primarily self-inflicted, meaning the stock could have significant upside if management executes better. The grounding of the 737 MAX following high-profile crashes and the current struggles ramping production on the aircraft now that it's back under approval are just the start of Boeing's operational disappointments. On the defense side, the company has suffered multi-billion dollar cost overruns, charges, and delays on high-profile programs like the KC-46 tanker (aerial refueling and military transport), the T-7A Red Hawk (pilot training aircraft), and Air Force One. A recent government report talked of "design instability" on the KC-46 and "Boeing's continued underestimation of the scope of the work and resources needed to accomplish it" on the T-7A, and said that "Boeing is experiencing aircraft mechanic workforce limitations due to a competitive labor market" regarding Air Force One. 

It gets worse. The first delivery of the 777X is now expected to take place in 2025, compared to an initial plan for 2020, and deliveries on the 787 remain halted since the Federal Aviation Administration raised concerns over production flaws.

Frankly, there are a lot of issues to resolve, but if -- and it's an ample "if" given the recent track record -- Boeing can execute better on these issues, then the company has a great opportunity ahead of it. For example, suppose there's news of the company resuming 787 deliveries, ramping 737 production, or moving toward 777X certification and delivery, or that the will be no more charges on significant programs. In that case, investors will change their sentiment on the stock. 

Valuation matters

Lastly, for all the doom and gloom around Boeing, it's worth noting that this is a business that generated $14.1 billion in earnings before interest, taxation, depreciation, and amortization (EBITDA) and $13.7 billion in free cash flow (FCF) in 2018 -- the year before the 737 MAX grounding. Given that the current market cap is only $81 billion, if Boeing can get anywhere near those EBITDA and FCF figures in the next few years, the upside potential is significant. 

Not plane sailing

Alternatively, the bears see Boeing's problems as ongoing and symptomatic of a troubled company. It's also a company whose debt has ballooned in recent years, while its FCF has turned negative. As such, it's susceptible to any external shock to its prospects, and investors can't rule out the possibility of more debt issuance or an equity raise in the future. 

BA Free Cash Flow Chart

Data by YCharts

Boeing's stock will remain a battleground

Boeing has some attraction for value investors, but it's one to avoid right now if you only like holding high-quality companies with histories of excellent execution. In addition, there's a lot of uncertainty around the company. You can be sure that the stock discussion and debate will continue through 2022.