Is Air Canada (TSX:AC) Stock About to Sink to $0?

Air Canada (TSX:AC) could sink to $0 per share before it hits $50 again, so let’s look at both sides of this volatile coin.

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Investors seeking to make their fortunes by investing in Air Canada (TSX:AC) may have quite a while to wait. Some say the stock may double in the next year, other say it’s more likely that it could sink to $0 per share. With so much uncertainty, here’s what you should consider before buying Air Canada stock.

Pandemic headwinds

The winds of change hit Air Canada stock as soon as a vaccine was announced last year. However, even with shares climbing to $31 recently — a 52-week high — it’s still not enough to convince investors to stick around. Shares have since sunk by 16% as of writing.

The airline industry has been and will continue to be an incredibly volatile investment. Fortunes could be made, absolutely, but that cash could also be lost quickly. This has already happened to Air Canada stock before, with shares sinking below $1 about a decade ago then climbing as high as $50 per share before the pandemic hit.

Today, we’re in a waiting period, and it’s why shares are at a bit of a middle ground. Shares are likely to continue trading at around $25 per share until some major announcement or change is made. That could leave shares soaring, sure, but it could also mean shares plummet depending on the news.

So, what do analysts think is the immediate and far-off future for Air Canada stock?

Where will Air Canada stock go?

What Air Canada stock relies on at this point is the government bailout. The company desperately needs cash, amassing $13 billion in debt as of writing. The company continues to lose millions of dollars every single day the majority of its planes are on the ground, with the company flying at 10% capacity in 2020.

So, yes, $0 is possible. Why? Because if we see another year like 2020, there is an enormous chance Air Canada stock could go bankrupt. With the pandemic still raging, and a variant causing even more spread of the virus, it’s likely it will be quite some time before the company is able to get anywhere near normal flying levels.

Then there’s its business model. The company relied on U.S. passengers flying long-haul flights with layovers in Canada. Long-haul flights are gone. So, now the company needs to find a way to make money through short-haul flights, which is why it recently announced more use of its Jazz airline.

So, if the company cannot rebound and we see another year, and perhaps another after that, similar to 2020, Air Canada stock could drop to nothing. But there is some hope on the horizon — it’s just volatile hope.

Air Canada stock: Some hope

We still don’t know what the government bailout will be, but when it happens, Air Canada passengers with vouchers will receive a refund (finally). Any bailout news is likely to send shares up again. So, if you’re looking to buy and hold until a bailout announcement, that could be a good short-term play.

Long term, however, you have to be far more patient. If you’d bought shares back around $50, you’ll be waiting years before seeing that cash again. While I have to admit I don’t think the stock will shrink to $0, I think it’s still going to drop before climbing near $50 again.

Even the experts find it difficult to bet on airlines, including Warren Buffett, who is avoiding the sector entirely. For my money, unless you already have shares in Air Canada stock, I would avoid it. It’s not worth the risk. But if you have shares, hold out hope that you’ll either make a return with a bailout or ride out the long haul. Just know you likely have years to wait.

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 Amy Legate-Wolfe owns shares of AIR CANADA.

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