Why the Bombardier (BBD.B) Stock Price Fell More Than 15% in February

Bombardier Inc.’s (TSX:BBD.B) stock price fell in February, as another major division is sold, effectively leaving Bombardier a shell of its former self.

| More on:
A stock price graph showing declines

Image source: Getty Images.

February was a difficult month, and, like you, I am attempting to uncover the best value opportunities that are emerging in these chaotic times.

The biggest reason for Bombardier’s (TSX:BBD.B) stock price falling more than 15% in February was the general market sell-off that was triggered by the coronavirus fears. But, as we all know, with Bombardier, there are many other good reasons for the fall.

Bombardier announces sale of Transportation division

As expected when Bombardier announced that it would be exploring “strategic alternatives,” the company has made big changes. In keeping with its intention to deleverage and narrow its focus, February saw the company announce the sale of its Transportation division to French transportation giant Alstom for $8.2 billion. In its final major strategic move, Bombardier announced this with the hopes that the new slimmed-down version of the company can move on without being saddled with excessive debt and without past failures tainting what the company sees as a bright future in business aviation and its strong position in the business jet market.

Management would like us to focus on the fact that Bombardier’s $7 billion business aircraft franchise is currently seeing a rapidly growing aftermarket business, a strong backlog, and opportunity for strong future growth of its leading position here.

Bombardier completes exit from commercial aviation

February also saw the completion of the sale of Bombardier’s commercial aviation division. Although this is not a stock price-moving event, it serves to help investors move forward and come to terms with the fall of this once industrial giant. To begin to truly value the stock within this new reality, investors must close the chapter of its past.

Bombardier’s exit from commercial aviation was completed with the sale of its ownership in the Airbus Canada Limited Partnership. Bombardier’s stake in the A220 (formerly known as the CSeries) business has been sold and its involvement in its infamous CSeries jets has finally come to an end. Given the cost overruns and production problems that have plagued this program, this can only be seen as a good thing. It’s not an ideal situation but a necessary course of action. Bombardier will receive $1.6 billion in cash from this divestiture and will be off the hook for future capital requirements, improving Bombardier’s liquidity markedly.

Bombardier’s deleveraging success fails to excite

It’s nice to be able to talk about Bombardier’s success for a change. With these two major transactions, the company will effectively leave the company with only $2.5 billion in debt (compared to more than $6.5 billion in debt at the end of 2019), and the company’s debt-to-EBITDA ratio will be a reasonable 2.5 times.

Bombardier stock price closes in on penny-stock status

With the sale of yet another one of the company’s major divisions, Bombardier has effectively become a speck of what it used to be in its glory days. Bombardier’s stock price has certainly reflected this, as it has plummeted from highs of over $25 two decades ago to the current share price of just over $1.00 — a pretty shocking and dramatic fall, and an example of the perils of investing and of capital-intensive, highly competitive businesses.

Foolish bottom line

It is difficult to really forecast Bombardier’s future with a high degree of certainty, as Bombardier’s history shows. The stock remains speculative, and even for those investors who are ready for a high-risk/high-reward opportunity, in my view, there are other, more promising stocks to consider.

In closing, I would like to remind Foolish investors of our belief in holding great businesses for the long term. While this belief remains intact, we are also aware that sometimes, short-term stock price movements create opportunities to create wealth. By blending this long-term focus with a keen eye for short-term stock mispricings, we can use both strategies in harmony, and our quest for financial freedom can be fulfilled.

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

More on Investing

sale discount best price
Dividend Stocks

2 Remarkably Cheap TSX Stocks I’d Buy Right Now

Cheap and undervalued TSX stocks such as goeasy can offer investors the opportunity to generate outsized returns next year.

Read more »

TFSA and coins
Dividend Stocks

TFSA Investors: How to Make Passive Income in 2024

These two passive-income stocks offer growth and dividends but should also remain stable going into 2024 and beyond.

Read more »

Dividend Stocks

Should You Buy This High-Growth Utility Stock Today?

While from a typically "boring" sector, this TSX utility stock offers unusually high growth potential if you are interested in…

Read more »

A close up image of Canadian $20 Dollar bills

3 No-Brainer Stocks to Buy With $100 Right Now

A small investment of $100 in these Canadian stocks could result in solid capital gains in the long term.

Read more »

Baubles On Snow With Snowy Christmas Tree
Dividend Stocks

3 TSX Stocks to Buy in December 2023

Here's why quality TSX stocks such as Jamieson Wellness should be part of your shopping list in December 2023.

Read more »

Value for money
Tech Stocks

2 Top Value Stocks to Buy in December 2023

With healthy growth prospects and discounted share prices, I am bullish on these two Canadian value stocks.

Read more »

analyze data
Dividend Stocks

Adjusting Your Portfolio for the New Normal: Higher Interest Rates in Canada

The 5% interest rate is here to stay until the second half of 2024. It's time to adjust your portfolio…

Read more »

stock research, analyze data
Dividend Stocks

2 Top Stocks to Buy With $500 Today

Investing in the stock market does not always require massive capital. You can begin with just $500 allocated to stocks…

Read more »