This Speculative TSX Stock Isn’t Worth the Risk Right Now

Bombardier (TSX:BBD.B) has been an exceptional outperformer in recent years, but is this stock simply too speculative and risky here?

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Caution, careful

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There is perhaps no other industry that has felt the pain of the pandemic more than the airlines. However, now that the travel and tourism industry is opening up again, investors are curious if it is the right time to invest in airline stocks. 

The stock market, as we all know, is extremely volatile and hard to predict. However, there is no risk-adjusted potential there for the time being to justify the performance of airline stocks. 

In this regard, Bombardier (TSX:BBD.B) is considered a tricky stock to invest in, despite its commendable performance in previous years. 

Let’s find out why this airline stock may be one to steer clear of for the rest of 2023. 

Bombardier’s shifting focus may be a positive

In 2019, Bombardier sold its Electrical Wiring and Interconnection Systems (EWIS) business in Querétaro, Mexico, to Latecoere. However, in 2023, Bombardier repurchased the business. 

The repurchase of the EWIS business is part of Bombardier’s strategy to focus on its core manufacturing capabilities.

It is also a positive development for Latecoere, as it provides the company with much-needed financial stability.

However, terms and conditions of this deal were not disclosed. Accordingly, investors concerned about the company’s balance sheet may view such deals as risky, depending on the terms Bombardier agreed to relative to its divestiture price back in 2019.

Bombardier’s financials are decent … for now

Bombardier’s revenue growth has been slower than most other companies in the industry, which may be why the market is not as optimistic about the company’s future.

Bombardier has grown its revenue by 19% in the past year and 30% in the past three years. This suggests that the company has done an average job of growing revenue over time. However, other airline stocks have seen much more acceleration, with similarly weighed-down balance sheets.

At first glance, seeing such revenue growth and a price-earnings ratio of around 10 times may be compelling for value investors screening for such stocks. That said, it wasn’t that long ago that Bombardier was battling bankruptcy concerns. If the market takes a turn for the worse, as many expect is possible in the next year or two, this is a stock that could prove to be very risky at these levels.

Bottom line

Among Canadian airline stocks, speculators have been greatly rewarded for holding this stock since the pandemic. That said, previous crises have led to significant outperformance. I’m generally bearish on the outlook for the market over the next two years, so this is a stock that’s too far along the risk curve for me personally.

That said, if we do indeed see a so-called soft landing, perhaps this stock has much more room to run. This year’s price action in the market has been commendable, and investors have been rewarded for taking risks. Perhaps that dynamic won’t change anytime soon. We’ll see.

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 Chris MacDonald 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.

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