The Motley Fool

Bombardier, Inc. (TSX:BBD.B): Time to Buy This Former Investor Darling?

Are you looking for that next stock to provide you with explosive returns? That undervalued stock that will make a comeback? Do you think that Bombardier (TSX:BBD.B) might be that stock?

With a one-year return of negative 30% and a five-year return of negative 38%, Bombardier’s year-to-date return of 24% seems to signify that investors may be asking themselves if now is the time to buy this former investor darling because it is finally too cheap to ignore.

Let’s take a look

Bombardier has gone from a stock market darling in the late 90s to a perpetual dog, as persistent and non-relenting disappointments caused the stock to crash and burn, tumbling from highs of more than $25 to under $3 today.

It’s a steep and shocking fall, and while the company has at least survived, it is a mere speck of what it once was, and it has destroyed massive amounts of shareholder value in the process.

Recent trading has seen the stock continuing its volatile run, and currently trading 50% lower than its summer 2018 highs, contrarian investors might be tempted to invest in this once favourite Canadian industrial giant.

De-risking Bombardier

Recent results came in better-than-expected, as strength in the business and commercial jet divisions drove free cash flow of $1 billion and a year-end cash balance of $3.2 billion, but the situation remains quite precarious.

Bombardier will use cash at a feverish pace as the Global 7500 business jet program is ramped up, and the struggles in the transportation division remain.

Capital spending will remain elevated over the next year or so, debt levels are still high (89% debt to capital), and management and the company still need to prove themselves.

Because choppy orders, massive overspending, delays, and disappointments are what have characterized this company, investors really need to be reassured.

A grain of reassurance comes in the fact that Bombardier is expecting $8.5 billion in annual revenue by 2020, up from $5 billion last year, largely driven by the Global 7500 aircraft.

Another grain comes in the fact that Bombardier has reported better-than-expected earnings in the last year or so, and this means a lot.

With valuation levels so low, this should certainly start to move the needle on the share price.

Also, if everything works out as planned (which is, admittedly, a big if), EPS will grow at a feverish pace in the next few years (50% approximate yearly growth rates).

So, big upside potential is certainly there, but in my view, this stock is only for the speculative investor for now.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Karen Thomas has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.