Air Canada (TSX:AC) stock fell 70% during the COVID-19 market crash of 2020. Unlike the rest of the economy, it didn’t recover. At today’s price, Air Canada stock is still down 63% from its 2019 high. And it doesn’t have the momentum that would suggest the poor performance will come to an end. AC had been trading between $12 and $15 in the early months of the pandemic. When the vaccine was announced, it quickly shot up to $20. That was one big opportunity to make money by buying Air Canada stock, but it quickly evaporated.
Flash forward today. Like many airlines, Air Canada has been growing its revenues, cash flows, and even earnings for several quarters. Still, its stock price hasn’t budged. It seems like there could be an opportunity here. In this article, I will make the case that Air Canada stock could possibly be a good buy in April 2023.
Revenue growing
One reason why Air Canada stock has a chance to turn it around this year is because its revenue is growing rapidly. In its most recent quarter, AC reported $4 billion in revenue, up 100%. That’s a remarkable growth rate, showing that Air Canada mostly walked off its COVID-19 damage by the first quarter.
In fact, the fourth-quarter revenue was even 2% higher than fourth-quarter 2019 revenue, so the company officially beat its pre-COVID revenue level! That’s a milestone that wasn’t supposed to occur until mid-2023, so Air Canada is getting back on track ahead of schedule.
Positive cash flows
Another reason for optimism toward Air Canada is the fact that its operating cash flows were positive in the most recent quarter and the most recent fiscal year. For the fourth quarter, operating cash flows came in at $647 million. For the full year, they came in at $2.8 billion. So, Air Canada has had multiple quarters of positive operating cash flows now.
For the time being, earnings remain negative. For the fourth quarter, the loss was $217 million, for the full year, it was $1.7 billion. Obviously, AC has a way to go before it hits profitability, but note the progress: in 2020, the loss was $4.6 billion. So, it has shrunk by nearly two-thirds!
COVID-19: Fading into the rearview mirror
A final “big picture” reason to be optimistic about Air Canada stock is the fact that the COVID-19 pandemic — its biggest risk factor in the past — is fading into the rearview mirror. While the pandemic itself is still real and still claiming lives, Canada’s COVID control measures are largely a thing of the past. There are still mask policies in place in some places, but it’s been over a year since there was a large-scale lockdown in Canada. It looks like the COVID policies have shifted.
That’s good news and bad news at the same time. It’s good news for the economy, because it means that people can work. It’s bad news for immunocompromised individuals who may be vulnerable to severe COVID effects. For Air Canada shareholders, the developments have been welcome, because they’ve improved the company’s revenue picture dramatically.
