Air Canada (TSX:AC) Stock: Double or Trouble?

Air Canada stock still has the potential to double your money if it can reach its pre-pandemic valuations soon. But what are the odds of that?

| More on:
Aircraft wing plane

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn more

Few other stocks have gotten as much limelight in the past 12 months as Air Canada (TSX:AC) has, and it’s easy to why. Skeptics of the stock waited for it to take the turn for the worst and declare bankruptcy. The proponents of the stock hung their hopes on its quick recovery and subsequent growth.

But the stock has proven worthy of the trust its investors have shown. Despite going through one of the worst financial crises, the company didn’t declare bankruptcy and survived without the government’s aid. The aid has finally come, and the airline can now start its journey towards a genuine financial recovery.

Right now, the stock is stuck in the middle. It’s not going up at a speed that its recovery enthusiasts were hoping for, but it’s also not showing any signs of dropping below $20. Many people are wondering, if they buy Air Canada now, what they can expect in a year or so: their capital growing double or getting in trouble?

Probability of the stock doubling your money

At its peak before the 2020 crash, Air Canada was hovering around $50 per share, which many people consider the recovery “benchmark.” But it’s important to understand that the stock is now significantly more diluted than it was in 2019.

Still, the mood around the airline and the aviation business, in general, is relatively positive. Despite the fact that the country is struggling with the second wave of the coronavirus, the vaccinations and E.U.’s decision to ease leisure travel restrictions are likely to bode well for Air Canada’s valuation.

The chances are strong that Air Canada will reach its pre-pandemic valuation soon, but if it takes too much time or the stock stays stagnant for a couple more years, wouldn’t your capital have a better chance of growing 100% in another stock?

Air Canada first-quarter 2021 earnings

Air Canada recently posted its first-quarter earnings, and they are quite devastating. The company reported a revenue decline of about 80% from the first quarter of 2020 and an operating loss of over $1.049 billion. It’s not just significantly higher than the loss last year, but also a bit higher than the previous quarter. The net cash burn comes out to about $14 million per day.

How investors perceive these results can set the course for the next upward or downward momentum for Air Canada stock. Investors who were hoping the first quarter of 2021 would at least be better than the last quarter of 2020 might start to lose confidence in the stock. However, other, more optimistic investors will likely wait till the next quarter to make up their minds about the long-term potential of the company.

Foolish takeaway

If you are willing to wait, then Air Canada might be a relatively reliable stock to grow your capital 100%, but that’s trading certainty for time. Even though it’s highly likely that the company will grow back to a $50-per-share valuation, it might take several years to do so. And if you are hoping for a quick recovery, ideally within the year, you might be better off looking at a different stock.

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 Adam Othman has no position in any of the stocks mentioned.

More on Investing

edit Sale sign, value, discount
Investing

3 Cheap TSX Stocks to Buy Before July

Canadian markets have bounced back, but investors can still snag undervalued TSX stocks like Finning International Inc. (TSX:FTT).

Read more »

thinking
Investing

Is Blackline (TSX:BLN) Stock Worth Your Attention in 2022?

Blackline Safety Corp. (TSX:BLN) stock has struggled in the year-over-year period, but there are some positives to glean from its…

Read more »

stock analysis
Investing

Why I’m Buying the Dip in Andlauer (TSX:AND) Stock

Andlauer Healthcare Group Inc. (TSX:AND) stock offered exposure to two promising spaces while offering solid value in late June.

Read more »

clock time
Tech Stocks

Now’s the Time to Load Up the TFSA With These 2 Top TSX Stocks

Here are two top TSX stocks that long-term growth investors may not want to give up on, especially at these…

Read more »

data analyze research
Energy Stocks

TSX Stock Picks With Huge Potential

If you want a TSX stock that's bound for even more strong growth, these three are top picks by analysts.

Read more »

growing plant shoots on stacked coins
Investing

Market Plunge: Double Your Cash With 3 Bargain Stocks

These TSX stocks have corrected over 50%, despite their strong fundamentals, and could easily double from here.

Read more »

oil and natural gas
Energy Stocks

Can Cenovus Stock Outperform in H2 2022?

Is now the time for investors in Cenovus (TSX:CVE)(NYSE:CVE) stock to buy more, or wait out this volatility right now?

Read more »

cup of cappuccino with a sad face
Investing

The Biggest Regret a TSX Investor Can Have

Hydro One (TSX:H) is a top bond proxy to own if you're a TSX investor who's worried about a pick-up…

Read more »