How Long Will Bombardier (TSX:BBD.B) Stock Rally Continue?

Understanding whether a rally still has momentum left to grow if it has reached its potential can help investors make informed decisions.

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It’s not enough to focus on your strengths to succeed. You also have to overcome your weaknesses. This is just as true for businesses as it is for individuals, and an amazing example of it would be Bombardier (TSX:BBD.B). Ever since the company sold its debt-heavy railway business to a French company, the stock has been on its way up.

You can also chalk part of the growth up to the post-pandemic momentum, but that has a long run out of steam. Bombardier, which is now solely focused on a business jet, is currently riding the momentum generated by the positive airline industry prospects.

Air travel is expected to come back in a big way, now that the pandemic is behind us, and Bombardier, which has a lot of cash to work with right now (about $3.6 billion), can put it to good use. But how long can this anticipation help the stock rise?

Hopeful CEO

While not exactly an unbiased source, Bombardier CEO Eric Martel claims that investors shouldn’t be worried about the four-fold gains and the stock running out of growth room. The CEO believes that the overall condition of the air travel sector makes Bombardier poised for more growth.

And if that’s a possibility, then buying Bombardier now when it was trading at a sizeable premium to its valuation 12 months ago might still be a good idea.

The stock is not the only thing picking up pace, however. The second-quarter earnings saw a 24.6% compared to last year too. And if the financial growth continues along with a healthy pattern, the investors might be less inclined to pull their capital out of the company, and the stock may continue to soar for a long time yet.

The new Bombardier

Bombardier has now repositioned itself in the aircraft market. The company delivered about 142 aircraft in 2019 when the aircraft division was pulling the weight of the company’s railway business as well. Now, the company can focus solely on its three aircraft families, and if the demand rises or grows beyond the pre-pandemic levels, Bombardier might see the sales number rise beyond 2019 levels.

Bombardier’s aircraft are counted among the best business jets there are. With a stellar reputation and a track record of selling the most advanced and longest-range jets in the world, all Bombardier needs to thrive is an active market.

One caveat here is that we don’t yet understand the long-term effects of the pandemic on business travel. During the pandemic, a lot of businesses relied heavily on communication and collaboration tools (and virtual meetings), which is both significantly time-saving and cost-saving compared to business representatives who are travelling for meetings. If the business traveling is expected to see a slow decline over the years, Bombardier’s future might be in trouble.

Foolish takeaway

Right now, Bombardier is one of the top-tier growth stocks trading on the TSX. And if the return to business travel and resumes to its pre-pandemic levels, the stock might continue to be excellent for investors. But it might be a good idea to wait until the next earnings report before buying. If you wish to be extra prudent, waiting until air travel demand truly spikes might be a good idea.

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. The Motley Fool has no position in any of the stocks mentioned.

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