At What Price Does Air Canada (TSX:AC) Stock Become a Good Investment?

Air Canada (TSX:AC)(TSX:AC.B) has been steadily increasing to record highs in the last few months, but at what point is it a buy?

It wasn’t that long ago that Air Canada (TSX: AC)(TSX:AC.B) was really struggling.

The airline company was doing well after its initial public offering, staying around the $15 per share mark for a while — that is, until an operating loss partially due to oil price increases happened in 2012.

The stock plummeted to under $1 per share. And if you had bought then, you’d be feeling pretty great right now.

That’s because this stock has made an entirely new transformation since that time — optimizing routes, changing schedules, retooling its fleet, and — of course — expanding. Canada is too small for this company, and Air Canada has since ordered aircraft that can support long-distance travel, taking advantage of U.S. citizens that have layovers in Canada. On top of that, Air Canada acquired its loyalty program, Aeroplan, and is set to relaunch it in 2020, and its low-cost carrier Rouge to support every type of traveller.

Of course, it hasn’t been all good news for Air Canada. Re-fleeting will cost the company about $6 billion over the next few years, and international expansion means international competition, not to mention the competition back home from other low-cost carriers.

Then there was news that the company would be grounding its Boeing 737 Max aircraft, which should have really put pressure on earnings. The grounding was completely unforeseen, causing 8,000 flight cancellations in the first quarter. The grounding was due to a safety alert sensor malfunction on an Ethiopian Airlines flight last March and a fatal crash on Lion Air off the coast of Indonesia last October.

But if you’re looking at this company’s books, you’re doubtless impressed. Air Canada recently released its first-quarter earnings to rave reviews, with $345 million in revenue compared to a $203 million loss last year. Operating revenue rose to a record of $4.45 billion, beating analyst expectations of $4.39 billion.

Yet the stock is still at just 10 times next year’s expected earnings. And honestly, even at a share price of about $36 at the time of writing, this stock is still a buy. In fact, I’d say it’s still even at a discount.

That’s because the company, while still in the process of restructuring, has put in a number of initiatives that will save it money in the long run. That includes even during a recession. The aircraft it’s re-fleeting with are more fuel efficient, saving the company tonnes of cash down the road. And with Rouge taking on 25% of the company’s business, that’s an ultra-low cost for both the carrier and consumer.

Given all this, it’s really just the beginning for this stock, and many investors have already realized this to jump on board. Air Canada has long been touted as a fairly stable stock that would see steady increases over the long term. While that’s still true, investors may now see a few jumps in share price, as the company comes out with more and more positive earnings reports.

In the next 12 months, many analysts believe the stock could break the $50-per-share mark. Given that it’s already closing in on $40 per share, I’d say that number is an easy one to hit and could turn $10,000 into $13,889 by this time next year.

Fool contributor Amy Legate-Wolfe owns shares of AIR CANADA.

More on Investing

Muscles Drawn On Black board
Energy Stocks

Canada’s Defence Boom Could Be Just Getting Started: 3 TSX Stocks I’d Buy Now

Canada’s defence buildout isn’t just about buying gear, it’s about funding Canadian capabilities in satellites, training, and manufacturing.

Read more »

A person uses and AI chat bot
Dividend Stocks

2 Canadian AI Stocks That Wall Street Isn’t Hyping (Yet)

The cross-border hype on two Canadian AI stocks could come anytime soon driven by strong profitability.

Read more »

Nickel ore is mined from the ground.
Metals and Mining Stocks

Mining Stocks Now Make Up 60% of Canada’s Top-Performing Companies

Mining stocks have generally outperformed in the last few years, but investors should keep in mind it's a highly cyclical…

Read more »

earn passive income by investing in dividend paying stocks
Dividend Stocks

Too Busy to Invest? 3 Set-and-Forget Stocks to Just Buy Already

Given their well-established businesses, consistent financial performance, and healthier growth prospects, these three TSX stocks are ideal for long-term investors.

Read more »

a woman sleeps with her eyes covered with a mask
Dividend Stocks

Don’t Sleep on These Canadian Stocks to Buy Now

Three high-growth Canadian stocks are “strong buy” candidates now for investors building long-term wealth.

Read more »

investor schemes to buy stocks before market notices them
Energy Stocks

I Love Buying Enbridge Stock on Sale, and It’s on Sale Now

Enbridge stock is looking forward to strong drilling and infrastructure investment, which will drive its cash flows and dividends.

Read more »

dividend stocks are a good way to earn passive income
Energy Stocks

This Unexpected Stock Is My TFSA’s Dirty Little Secret

A high-yield energy stock paying monthly dividends is a reliable income engine for a TFSA portfolio.

Read more »

voice-recognition-talking-to-a-smartphone
Dividend Stocks

Telus: My Honest ‘Buy, Sell, or Hold’ Take on the Stock

 A 55% dividend cut. A $1.8 billion quarterly loss. A new CEO. Telus has changed dramatically in 2026. Here's how…

Read more »