Bombardier (TSX: BBD.B) shareholders can’t seem to catch a break.
The notorious perennial underperformer continues to live up to its reputation as a dud following one of its most violent declines to date; the stock collapsed 38% over two days following the pre-announcement of some abysmal fourth-quarter results. With the company’s Airbus partnership now at risk, it seems as though the financially challenged epitome of mismanagement may be at the brink of collapse.
It’s tough to blame investors for rushing to the exits over the two trading sessions that followed Bombardier’s disappointing announcement. Investors have eagerly been awaiting surging profits and positive free cash flows, but in the end, they got dealt with results that were poor enough even to fall short of the already low bar that had been set before it.
With little transparency into the business and limited to no visibility with regards to future cash flows, investors need to realize that Bombardier is not an investment, it’s a speculation at best and reckless gamble at worst.
Bombardier may very well be a cigar-butt stock with zero puffs left. In many prior pieces, I urged investors to steer clear of the company because management was not up to par, making the stock uninvestable and dangerous to own at $2 and change.
“You have to remember that Bombardier has a notorious reputation for missing deadlines and going way over budget, a trend that could very well continue in spite of the restructuring efforts to alleviate the balance sheet. Investors would be wise to take any overly bullish commentary or analyst projects with a grain of salt and a double-dose of skepticism.” I said in a prior piece.
“Poor execution with regard to restructuring efforts, unforeseen cost overruns, delays, and other probable negatives could quickly derail a Bombardier in a hurry and cause analysts to downgrade their price targets significantly.”
Indeed, this is what happened after the pre-announced earnings shortfall, with analysts at TD Securities slashing their 12-month price target nearly in half ($1.70 from $3.25), alongside a downgrade from “spec. buy” to “hold”.
Some things never change
And given the aircraft-carrier-sized effort needed to turn the ship around, I wouldn’t touch the stock with a 10-foot barge pole, even though shares are close to the “cheapest” they’ve been in recent memory.
Since the government has shown reluctance to invest another penny into the cash “black hole” that is Bombardier, I certainly wouldn’t rule out a scenario where the transport manufacturing giant goes bankrupt in the new decade. Bombardier will have to turn things around on its own, and if you lack confidence in management, I see no reason why you should gamble your hard-earned money on a big-league business that’s just as risky and volatile as a penny stock.
Foolish takeaway
Bombardier is going to have to dig itself out of the pit it dug itself in once again. Given Bombardier’s reputation, which, I believe, has been permanently tarnished, it’s tough to justify an investment in the name even if shares fall below $1.
Your TFSA is too precious for speculative moonshot bets like Bombardier. While an against-the-odds turnaround could result in a quick triple, but if you’re still keen, you’d probably be better off putting the name in a non-registered account so you can offset any potential losses.
Stay hungry. Stay Foolish.
