Air Canada (TSX:AC) stock has been rising more than 25% in the past three months. The airline stock has been picking up steam as investors are hopeful that the coronavirus pandemic could be coming to an end next year with multiple vaccines on the way.
That excitement has investors buying up shares of Air Canada, hoping that travel numbers could recover in 2021 and that the stock could potentially get back to where it was before the pandemic first hit — above $50.
However, there’s no guarantee that will happen, as there are multiple factors at play here. The end of the coronavirus pandemic won’t be the solution to all of the problems in the economy or in the markets today. Many of the businesses that shut down during the pandemic and the jobs that have been lost this year won’t be coming back.
The damage has been done and the full effects of the pandemic likely haven’t been felt just yet. With the government giving Canadians various emergency benefits to help them get through the pandemic, many people have been able to get by this year thanks to federal aid. But as that inevitably comes to an end, it could lead to tougher times ahead, even though the worries relating to the pandemic may be gone.
That means that discretionary incomes could remain low and consumers may not be willing to spend as much on air travel as they did prior to the pandemic. And businesses struggling in 2020 are probably going to feel they need to continue to be frugal next year, and that will likely mean cutting down on unnecessary travel.
Bill Gates says more than half of all business travel could be gone for good. Companies have been conducting meetings online this year and not only does that save time but it also keeps costs down, something that’s going to be important even into next year as the economy’s struggles could still be long from over.
The end result is that Air Canada could still have a long path to recovery. Expectations are low right now because investors aren’t expecting much in terms of passenger numbers or revenue. But when the pandemic is over and air travel doesn’t suddenly return to pre-pandemic levels, it could be a wake-up call for investors who may have been too bullish on the stock and expecting a big rally in 2021.
The reality is that it could take multiple years for the airline to recover, and that’s by no means a guarantee, either. There’s still plenty of risk involved with investing in Air Canada stock. As tempting as it may be to make a contrarian bet on the airline stock next year, I wouldn’t be surprised to see its share price fall given the challenges that still lie ahead.
While Air Canada’s stock has been rallying of late, that doesn’t mean it’s out of the woods and that it’ll be smooth sailing from here on out. There are much bigger reasons than the pandemic that could keep the stock down next year, and investors shouldn’t be quick to assume that the momentum the stock is on in the past few months will continue into 2021.
5 Stocks Under $49 (FREE REPORT)Click here to gain access!
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.
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.