Air Canada Stock Could Take Off in 2023: Should You Board Now?

Air Canada (TSX:AC) stock has been beaten down badly. Here’s why 2023 could be different.

| More on:
Airport and plane

Image source: Getty Images

Air Canada (TSX:AC) has been among the worst-performing large-cap TSX stocks over the last three years. Much like other stocks, it fell dramatically during the March 2020 COVID-19 market crash. Unlike other stocks, it didn’t really recover. It has risen about 64.1% from the lows, but it’s still closer to the March 2020 low than it is to the January 2020 high. This is in contrast to banking and oil stocks, which have recovered to their pre-COVID levels, and then some.

Many investors who bought Air Canada in early 2020 got burned. However, those who bought the dip did quite well. Today, it’s beginning to look like Air Canada is a pretty good buy. In this article, I will explore why Air Canada stock has a good chance of recovering in 2023.

How Air Canada got beaten down

Before exploring why Air Canada stock could rise in 2023, I need to explain how it got beaten down in the first place.

In March 2020, much of Canada locked down as COVID-19 arrived in the country. Travel bans were implemented: many foreign countries were totally off limits, while domestic travel was subject to 14-day quarantines upon entering new provinces. Predictably, travel volumes declined.

The result was a string of losses for Air Canada. For the full year 2020, the company lost $4.6 billion. It followed that performance up with another $3.6 billion loss in 2021. In 2022, revenue started growing. However, oil prices also rose, resulting in Air Canada paying out massive amounts of money on jet fuel. It was a tough time. Right when Air Canada looked like it was walking off its COVID-19 damage, the energy crisis came out of left field, and delayed the company’s recovery once more.

Why 2023 could be a great year

As we’ve seen, Air Canada took a big beating in 2020 and again in 2021 and 2022. It has been a tough time. But today, the company has a solid foundation for a recovery. In 2022, Air Canada enjoys the following advantages:

  • Rising revenue
  • Falling oil prices
  • A regulatory environment in which new COVID lockdowns aren’t being discussed

In the meantime, AC stock trades at just 0.47 times sales and 3.15 times operating cash flow. “Operating cash flow” is a measure of cash profits, sometimes used as a substitute for earnings.

What these multiples mean is that AC stock is pretty cheap. If it becomes profitable again, it may start to rise.

Will AC hit the 2019 highs?

It’s one thing to note that Air Canada has a good foundation to start rising from, but quite another to say that it will return to its 2019 levels. Before COVID hit, AC was worth over $50. Today, AC has more shares outstanding and more debt than it did back then. A rally back to $50 appears unlikely. However, significant gains from today’s prices are possible.

So, should you buy Air Canada stock?

It’s hard to say, but it’s certainly not the worst stock out there today. Tech stocks are still expensive, oil stocks are trading high relative to where oil prices are, and utilities are getting hit by high interest rates. It’s quite possible that AC stock will outperform next year.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Target. Stand out from the crowd
Investing

2 Canadian Stocks I’m Buying Lots of This Year

I’m looking to snatch up exciting Canadian stocks like VieMed Healthcare Inc. (TSX:VMD) throughout 2023.

Read more »

grow money, wealth build
Dividend Stocks

Got $3,000? 3 TSX Growth Stocks to Buy in January 2023

Top TSX growth stocks that look appealing for 2023.

Read more »

woman data analyze
Dividend Stocks

Need Passive Income? Turn $15,000 Into $851 Annually

This passive-income stock is already climbing higher, up 16% in the last three months! Yet it's still valuable, so you…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

Retirees: 3 Reliable Canadian Dividend Stocks to Buy Now for Passive Income

Top TSX dividend stocks now appear oversold.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Investing

2 TSX Stocks Safer for Investing in a Recession

These consumer companies will likely beat the broader market averages amid a recession. These stocks offer stability, income, and consistent…

Read more »

Dividend Stocks

For $100 in Passive Income Each Month, Buy 1,500 Shares of This REIT

REITs such as Northwest Healthcare can enable investors create a passive-income stream as well as benefit from capital gains.

Read more »

A colourful firework display
Dividend Stocks

2 Canadian Growth Stocks (With Dividends) to Start 2023 With a Bang

Here are two of the best dividend-paying Canadian growth stocks you can invest in at the start of 2023 and…

Read more »

sale discount best price
Dividend Stocks

4 Insanely Cheap Canadian Stocks to Buy for Passive Income

The recent bear market has created some incredible bargains, especially for those looking for passive income. Here are four cheap…

Read more »