Canadians just marked the one-year anniversary of when the market crashed. On Mar. 18, 2020, investors saw their investments crash to levels not seen in years. The TSX alone dropped by almost 40%. Some stocks, unfortunately, have not only hardly climbed, but could remain, at best, stagnant for years. That includes Air Canada (TSX:AC) stock.
Since January, 2020, the airline industry has been either completely shutdown or under restrictions. This has taken an enormous chunk from earnings, and stocks continue to trade at incredible lows. But it’s also causing a lot of investor attention, for those wondering when a rebound will happen. But unfortunately, if you’re hoping for $50 any time soon, Air Canada stock isn’t for you.
Avoid Air Canada stock … for now
At this point, if I were to give a blanket statement, I would say to avoid Air Canada stock at the moment. If the market crashes again, this stock is set to fall even further than it already has. The stock trades at half its pre-pandemic levels. If another crash were to happen, which is possible, then this would be one of the first companies to drop — especially if that crash is pandemic related.
True, you should buy low and sell high, but is Air Canada stock even that low considering its fundamentals? It still trades at a price-to-book ratio of 5.1 as of writing, which isn’t cheap, though not expensive; its price-to-sales ratio is far more reasonable at 1.5.
Worth the wait?
The pandemic is currently costing Air Canada about $15 million each day at current flight levels. The stock lost about 85% of its revenue because of the crash and pandemic. Yet investors wonder if the strength of the business is enough to keep a stake.
It’s true; this is a high-quality company that will eventually rebound. A government bailout is on the way, though much of that cash will go to refunding vouchers. The company also has about $13 billion in debt; however, this is also due to investments that will help the company, all made before the pandemic. Its fuel-efficient aircrafts and routes will definitely help bring in revenue quicker.
However, there remains a lot of risk. The question everyone wants to know is, when will things return to normal? The answer is actually easy: never.
The world has changed, and the airline industry will have to change. In the case of Air Canada stock, the company has already increased the use of its short-haul Jazz airline. This is because it used to rely on its U.S. passengers taking long-haul flights with layovers in Canada. Unfortunately, this won’t bring in the revenue it once did. So, Air Canada will have to change.
But it will change, and it will adapt and eventually it will get back on track. When that will happen, however, can’t be predicted.
When investors are considering taking up a stake in any company, it should never be for short-term gains. There is opportunity to be had during any market crash or downturn, but only from high-quality companies. Even though Air Canada stock is considered a high-quality company, it has a lot of work to do. If you need cash in the next few years, I would stay away from this stock until some real progress is made.
However, if you have a stake and are willing to wait, then do some research and decide whether this is a company that can stay with you for the next few decades. If that’s the case, ignore what’s happening right now and simply wait it out. When in doubt, that’s usually the best course of action.
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Before you consider Air Canada, you may want to hear this.
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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.