Travel Is Returning: Buy Air Canada (TSX:AC) Stock?

Air travel is not exactly back to normal, but by the end of the year, it’ll be relatively closer to 2019 levels, and by then, the airline stock discount might be gone.

| More on:
Paper airplanes flying on blue sky with form of growing graph

Image source: Getty Images

One of the best ways to maximize the return potential of an investment is being ahead of the curve, i.e., buying breakthrough stocks when they are downtrodden. It’s a difficult trick to pull off since it requires a lot of patience, a healthy risk tolerance, relatively disposable capital, etc. This strategy has a financial flaw since it requires you to tie your capital, sometimes for years, to an asset that may not pay off, and you also lose out on predictable slow growth.

However, there are times when being ahead of the curve is relatively easy but relatively less potent. One example would be Air Canada (TSX:AC) stock in the current environment.

Air travel industry

The air travel industry around the world is recovering. According to one projection, global air travel demand might reach about 84% of the 2019 level by the end of this year. This will be different for different countries, and Canada and Air Canada, by extension, might fall lower or reach higher than this point. Still, it’s a very optimistic indicator of recovery.

However, we have to take the potential hindrances to this recovery into account as well. Air Canada is still appealing to the government to lower COVID restrictions. Though it’s not a regional dispute, the Russia-Ukraine war could have broader consequences for the world that we just can’t anticipate yet. But, even if the demand misses this mark, the chances of full recovery by the end of 2023 are highly likely.

Should you buy Air Canada stock?

The answer is more complex than a simple yes or no. The choice is highly individual-centric and governed by factors including risk tolerance, growth goals, capital appreciation timelines, etc. At its current price of almost $24 per share, the stock is capable of doubling your capital if it only reaches its pre-pandemic peak. And if it can surpass that point, you may be able to bag much more potent growth.

But it would be wrong to assume that the stock’s growth will sync perfectly with the international air travel demand recovery. The stock may start spiking as soon as quarterly earnings turn a corner, but it may also stagnate at or above $30 even after 2023.

The pre-pandemic valuation is not too lofty a goal, and the stock (most likely) will hit that mark sooner or later. You have to decide whether it would be better for you to buy and wait for that long, tying up your capital, or you can buy just before or after the growth pattern is set, even if you lose out on the current powerful discount.

Foolish takeaway

The airline bear market might be near its end in Canada. If the airline hadn’t bled as much as it did and didn’t have to dilute its shares and take on more debt, investors would have been more open to buying it. But even over-leveraged as the airline is right now, its competitive edge should not be disregarded.

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.

More on Stocks for Beginners

Hand writing Time for Action concept with red marker on transparent wipe board.
Stocks for Beginners

Buy the Dip: 2 Insanely Cheap Growth Stocks to Buy Today!

Many Canadian growth stocks are looking insanely cheap today. Here are two stocks that have long histories of making investors…

Read more »

clock time
Stocks for Beginners

3 Stocks to Start Investing Today

Looking for a set of stocks to start investing today? Here are some great options that offer growth and income…

Read more »

Chalk outline of two arrows pointing in opposite directions
Stocks for Beginners

How to Save Thousands Per Year With Your RRSP

If you can hit your RRSP contribution limit each year, you could save thousands in taxes that could help boost…

Read more »

Portrait of woman having fun in the street.
Stocks for Beginners

New Investors: 3 Dividend Stocks to Buy Soon

Are there too many stocks to choose from? New investors can start their research in these solid dividend stocks!

Read more »

edit Sale sign, value, discount
Stocks for Beginners

5 Amazing Stocks That Are on Sale Today

After the recent stock market correction, tonnes of top-quality stocks are on sale today. Here are five amazing stocks to…

Read more »

stock analysis
Stocks for Beginners

2 Simple Strategies That Canadian Investors Can Use to Start Investing in Stocks

Here are two of the simplest and best investing strategies for Canadians to start investing in stocks today.

Read more »

Target. Stand out from the crowd
Stocks for Beginners

Top 2 Dividend Stocks for Beginners

Dividend stocks like BCE (TSX:BCE)(NYSE:BCE) are ideal for beginners.

Read more »

Technology
Stocks for Beginners

Starting an Investment Portfolio? Buy These 3 Stocks!

Interested in getting a start in the stock market? Buy these three stocks today!

Read more »