Air Canada (TSX:AC) stock has been trading on a slightly negative note in January. The stock has seen a 3% decline on a month-to-date basis against a 2.4% rise in the TSX Composite Index. After staging a massive rally in November based on COVID-19 vaccine-related news, Air Canada stock has remained largely mixed to the negative. In the last 30 days, it has lost 19.2%.
Let’s find out whether its stock has bottomed out already or it can tank further in the coming months.
Air Canada stock could fall further
As I have pointed out in some of my recent articles, I found a sharp November rally in Air Canada shares a result of investors’ overconfidence. Back then, there were no concrete signs of a near-term recovery in the company’s fundamentals. In fact, I expected its challenges to continue in the coming quarters.
While the demand for international travel continues to be low, the airline industry has very little to cheer about at the moment. The onset of a seemingly deadlier variant of COVID-19 in the United Kingdom has made the situation worse for the industry, despite the ongoing vaccination efforts. That’s why I wouldn’t want to buy Air Canada stock right now.
Bill Gates weighs in
It’s not only about the airline industry’s ongoing troubles. Instead, I find Air Canada’s future to be even more worrisome due to the industry-wide sluggish business travel demand. Many experts — including billionaires like Bill Gates — predict a sharp decline in business travel demand (of over 50%) in the post-COVID world. Even worse, this expected drop in the demand is likely to be a permanent one — and not temporary.
We shouldn’t completely ignore these predictions as they come from the world’s some of the most experienced executives like Bill Gates. And even if the slump in business travel demand isn’t as sharp as Gates is predicting, it might still point to rising troubles for airlines — including Air Canada.
The crash is not over yet
Air Canada stock saw a massive crash in the first quarter of 2020 and fell by about 68%. The stock couldn’t recover from these losses throughout the year as it ended 2020 with an over 50% decline. While I wouldn’t claim that Q1 2021 would be much worse for Air Canada stock, I don’t see many reasons why its stock should recover from its current levels. The airline continues to burn big piles of cash with each passing day — with no big improvement hopes in the near term.
Air Canada will report its fourth-quarter and full-year 2020 results on February 12, 2021. I expect its Q4 results to showcase a prolonged negative trend in its financials. This could significantly hurt investors’ sentiments and trigger another sell-off in its stock. That’s why I find it to be one of the riskiest stocks to buy on TSX at the moment.
Instead, it would be wise to invest the same money in other cheap stocks to grow it much faster.
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Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.