Air Canada Stock: Headed to $15?

These concerns could keep Air Canada stock highly volatile in the near term.

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Air Canada (TSX:AC) stock started 2023 on a solid note, as its share prices jumped 16.5% in January, helped by a broader market recovery. By comparison, the TSX Composite benchmark inched up by 7.1% in the first month of the year. However, the turmoil in airline stocks doesn’t seem to be ending soon, as AC stock has already given up all the gains it saw in January to currently trade with 1.5% year-to-date losses at $19.09 per share with a market cap of $6.8 billion. While the main TSX index has also erased most of its gains in the last few weeks, it’s still up 1.6% in 2023.

Before we discuss where Air Canada stock might be headed in 2023 and beyond, let’s take a closer look at some key factors that have affected its stock price movement lately.

Air Canada stock

It’s important to note that 2023 is not the first year that Air Canada stock has been struggling. In fact, it has consistently been posting yearly losses since 2020. As the COVID-19-related shutdowns and travel restrictions affected air travel globally, its shares plunged 53.1% in 2020.

Despite investors’ expectations of a sharp recovery in the coming years, AC stock continued to decline in 2021 and 2022 as well. Several factors, like the new coronavirus variants, worries about slowing economic growth, inflationary pressures, and geopolitical tensions, could be seen as the main reasons for affecting its price movement in the last few years. With this, Air Canada’s share prices are currently down 61% from its 2019’s closing level of $48.51 per share.

Is AC stock headed to $15?

Besides a sharp recovery in most beaten-down stocks on the Toronto Stock Exchange in January, improving air travel demand could be the reason why Air Canada stock started 2023 on a strong note.

Strengthening travel demand was the primary factor the largest Canadian airline company reported revenue of $4.7 billion in the December quarter — up 71% on a year-over-year basis. For the quarter, it posted an adjusted net loss of $0.61 per share, which was significantly less than the $1.26-per-share loss a year ago. However, its adjusted net loss in the fourth quarter of 2022 was still massively wider than Street analysts’ estimate of $0.21 per share, which seemingly disappointed investors. That’s why AC stock has been on a downward trajectory since its fourth-quarter results came out on February 17.

Although recent sharp declines in the prices of energy products could lower Air Canada’s fuel costs, big challenges, including continued labour shortages and inflationary pressures, could drive its costs higher in the ongoing year and hurt its profitability. Apart from these cost pressures, the ongoing macroeconomic uncertainties and the possibility of a looming recession could also restrict Air Canada stock’s upside moment in the near term. Given these company-specific and macroeconomic concerns, I wouldn’t be surprised if AC stock falls further toward $15 or $16 per share in the short term.

That said, any short-term decline in Air Canada stock could be an opportunity for long-term investors to buy it at a bargain, as its liquidity position and overall fundamental outlook remain strong.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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