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?

| More on:
Caution, careful

Image source: Getty Images

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.

More on Investing

edit Person using calculator next to charts and graphs
Dividend Stocks

Got $3,000? 3 Dividend Stocks to Buy and Hold for the Long Term

These TSX dividend stocks look cheap today.

Read more »

tsx today
Stock Market

TSX Today: What to Watch for in Stocks on Monday, June 24

After sliding for five consecutive weeks, the TSX Composite Index has slid 2.8% so far in the second quarter.

Read more »

Money growing in soil , Business success concept.

2 Great Dividend-Growth Stocks to Stash in a TFSA for Decades

CN Rail (TSX:CNR) and another dividend grower look cheap enough to own in a TFSA value fund for the long…

Read more »

Canada day banner background design of flag

Essential RRSP Stocks: 2 Canadian Picks to Secure Your Retirement

Two dividend stocks are ideal anchors for Canadians intending to contribute to their RRSPs in 2024 and save for retirement.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.

5 Strategies for Maximizing Your CPP Benefits in 2024 and Beyond

Are you looking for the best way to max out your CPP benefits? Here are some tips you may not…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Tech Stocks

Better Artificial Intelligence Stock: UiPath vs.

Deciding between UiPath and isn't easy since both have strengths and weaknesses.

Read more »

data analyze research

The 1 Stock to Own in a Sideways Economy

Here's why Restaurant Brands (TSX:QSR) remains a top TSX stock investors shouldn't ignore for long-term gains in this market.

Read more »

Retirees sip their morning coffee outside.

Here’s the Average RRSP Balance at Age 65 and 71 in Canada

Canadian investors can consider holding dividend stocks and supplement their CPP and RRSP payouts in retirement.

Read more »