The Motley Fool

Air Canada’s Stock Price: Is it a Fall Buy?

An airplane on a runway
Image source: Getty Images.

By now, most investors understand the difficult situation Air Canada (TSX:AC) stock is in. Canada’s flagship airline continues to trade more than 50% below its pre-pandemic price, generating lots of interest from investors.

For months now, though, Air Canada’s stock has been rangebound with no signs of a recovery anytime soon. Ever since it saw a jump last fall when the vaccines were announced, there hasn’t been much positive news lately, and the stock has had little momentum, which is why it’s yet to rally.

So, you may be wondering, as we continue to look for ways to grow our economy in the new normal, if the stock will be worth a buy this fall.

Is it worth it to buy Air Canada stock this fall?

At this point, not much has changed for Air Canada. So, in the current market environment, I wouldn’t be rushing out to buy shares. However, that doesn’t mean the stock can’t become a compelling buy over the next couple of months.

Governments around the world have shown a lot of desire to do what they can to continue to aid in the recovery of their economies. This includes changing travel restrictions and trying to balance both their economies as well as the health of their citizens.

It also includes items such as a vaccine passport, which would help open more of the economy back up safely.

Any development like this, especially from multiple countries around the world, would be a big step in the right direction for Air Canada stock. Unfortunately, at this point, though, there is still a tonne of uncertainty. There is uncertainty about the cooperation of nations, but also about how devastating the Delta variant could be.

Already this month, we’ve seen stocks sell off, as investors’ fear has been rising around the rapidly approaching fourth wave.

So, if you’re interested in this opportunity to buy Air Canada stock while it’s undervalued, here’s what you have to watch over the coming weeks.

Keep tabs on the global recovery

Before you even consider an investment in Air Canada stock, it’s crucial to have an idea of what the company’s fair value is today.

This is crucial, because ever since the pandemic started, Air Canada has been consistently losing value. So, each month or quarter that goes by without any massive changes to the company’s operations will continue to see it lose value.

This is one of the most important factors to consider, because what could be an undervalued price today may be overpaying for Air Canada by the time we get to November.

The stock has already lost a tonne of value through the pandemic. At the end of 2019, Air Canada’s book value per share was nearly $17. Today, as of the end of the second quarter, its book value per share sits at just $1.61, showing just how much value Air Canada stock has already lost.

In addition to knowing what the company is worth today, it’s also crucial to have an idea of how much it can recover when it finally does start to see a rapid increase in sales.

A recovery is what we are all waiting for, but whether it’s enough for Air Canada to break even will be another question. So, it’s crucial that you know the company’s financials well and have an idea of just how much revenue it will need to see for it to start earning positive cash flow once again.

Keeping up to date with all of the company’s developments as well as the factors in the economy that could impact Air Canada will be crucial for any investors who have it on their watch list.

Bottom line

In the current environment, it looks like the stock is facing a lot of headwinds. However, I don’t expect Air Canada stock to be this badly impacted for much longer.

Therefore, if you’re interested in buying Air Canada stock while it’s undervalued, now is the time to start watching the stock a lot more closely. This way, you’ll be prepared to take advantage when the opportunity finally presents itself.

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 has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.