Why Transat AT Shares Tanked Today

Is this meaningful? Or just another movement?

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Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of tour operator Transat AT (TSX: TRZ.B) plummeted 18% today after its quarterly results and outlook disappointed Bay Street.

So what: Transat shares have plunged in recent months on foreign exchange concerns, and today’s Q1 results — net loss of $25.6 million on revenue growth of just 5.6% — coupled with downbeat guidance only confirms those fears. In fact, the weak Canadian dollar boosted Transat’s operating expenses 2.7% over the year-ago period, prompting investors to flee the stock on the fear of continued margin pressure ahead.

Now what: If the Canadian dollar remains at current levels, Transat expects its current-quarter operating expenses to increase 3.7% year-over-year. “[O]ur cost-control and margin-improvement program, which includes internalization of our narrow-body fleet, is unfolding as planned and delivering the expected results,” President and CEO Jean-Marc Eustache reassured investors. “We are on the right course”.

Given Transat’s still-healthy balance sheet and beaten-down stock price, the downside might even be limited enough to bet on that turnaround talk.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned.

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