Cineplex Stock Is Rallying, But What About Air Canada?

After Cineplex (TSX:CGX) massively outperformed Air Canada (TSX:AC) stock to start the year, here’s which stock is the better investment going forward.

| More on:
thinking

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

Cineplex (TSX:CGX) stock has been rallying rapidly this year, as it’s been a top performer in 2021. Air Canada (TSX:AC) stock, though, which has arguably been more impacted and has been more popular among investors, hasn’t fared quite so well.

So far this year, the stock market in general has had a strong performance.

cineplex stock air canada ac stock

As you can see, through just the first five months of the year, the TSX has gained just under 14%. So, although Air Canada stock is up nearly 20%, that’s considerably less than Cineplex and only slightly edging out the broader market, which has been recovering for over a year.

Air Canada continues to trade well off its pre-pandemic price, and anytime it’s looked like it might rally, the stock has once again sold off. This has many investors wondering what’s going on. Will this continue? Which is the better stock to buy now?

Cineplex stock

Cineplex stock, despite its impressive rally so far this year, still has a tonne of upside. Although its business isn’t anywhere close to being similar to Air Canada, the two companies have been impacted almost identically by the pandemic.

The difference is that Cineplex has had the opportunity to cut a lot more costs than Air Canada and consequently save a lot more value.

In fact, because it hasn’t lost nearly as much value as Air Canada stock through the pandemic, it looks in a lot better shape today. Not only are its movie theatres primed for a big recovery, but so are its entertainment venues and its digital ad business.

In my view, there is still lots of upside with Cineplex stock, especially if you’re willing to hold it for a couple of years. There’s no telling how it may perform in the short term.

However, over the next few years, as it can recover and the pandemic is fully in the rearview, Cineplex stock offers investors a substantial opportunity.

Air Canada stock

Air Canada stock is a lot more difficult to consider, because there is so much more uncertainty. For Air Canada, its business doesn’t solely rely on the state of the pandemic domestically but also around the world.

This makes it a lot more complicated, because it adds more uncertainty to an investment than Cineplex stock, for example. And as I’ve said since the beginning of the pandemic, taking a long-term position in Air Canada stock doesn’t make sense, because it continues to lose massive amounts of value every single day.

The stock was worth a little more than $50 a share when the COVID-19 market crash took place. Since then, the stock has lost a tonne of value.

Simple math shows that if you take the company’s negative earnings per share (EPS) since the pandemic began (all the money it’s lost) and subtract it from its pre-pandemic share price, it’s lost between $15 and $20 in EPS. If you subtract that from its $52 pre-pandemic high, you get a share price today around $32-$37.

That’s spot on with the target price I gave the stock when I did a little more in-depth math a few weeks ago. And keep in mind, that’s the price of Air Canada stock would be worth if things went back to normal today.

Analysts seem to think the stock is worth around that price, too. According to the average target price, the stock is worth just over $30. That’s not much upside from today’s market price of roughly $27.

Because there looks to be little upside and so much uncertainty, rather than Air Canada, I’d either stick with a long-term investment in Cineplex stock or choose any number of other Canadian stocks that offer much better potential today.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool recommends CINEPLEX INC.

More on Stocks for Beginners

financial freedom sign
Stocks for Beginners

5 Investing Hacks to Build a Million-Dollar Portfolio  

Its not difficult to build a million-dollar portfolio. Here are five simple investing hacks that take less than 10 minutes…

Read more »

Volatile market, stock volatility
Stocks for Beginners

3 Top TSX Stocks to Buy in Volatile Markets

Sitting on cash? Consider these three TSX stocks for the long term.

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

1 Canadian Growth Stock That Could Double Your Money in an Economic Recovery

The market downturn is an opportunity to lock growth during the economic recovery. This stock is a blend of value,…

Read more »

edit Safe pig, protect money
Stocks for Beginners

2 Safe TSX Stocks for Beginners to Buy in a Market Correction

These two TSX stocks are still solid long-term buys today, despite the recent market correction.

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Stocks for Beginners

3 Real Estate Stocks to Buy for Terrified Investors

Motley Fool investors shouldn't be afraid of investing in real estate if they have a long-term growth strategy, but these…

Read more »

Value for money
Stocks for Beginners

Market Correction: A New List of Value Stocks Just for You

The 2022 stock market has been bearish, with tech stocks being the biggest losers. But tables are turning. It's time…

Read more »

Knowledge concept with quote written on wooden blocks
Stocks for Beginners

3 Reasons Why Inflation Impacts Canadian Stocks

Here are the three most common ways inflation impacts Canadian stocks, why they're selling off, and when you'll want to…

Read more »

Growth from coins
Stocks for Beginners

2 Growth Stocks New Investors Can Buy on the Dip Today

After the recent market correction, many growth stocks look cheap, making it a perfect time for stock market beginners to…

Read more »