Air Canada (TSX: AC) has been one of the worst-affected Canadian stocks by the COVID-19-driven challenges. Even as the TSX Composite benchmark has risen about 16% from the pre-pandemic year 2019’s closing levels, AC stock has witnessed about 61% value erosion during the same period to currently trade at $18.91 per share with $6.8 billion market capitalization.
In this article, we’ll discuss where Air Canada stock will be in five years from now. But first, let’s take a quick look at some important recent factors and find out how they could impact its price movement going forward.
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Air Canada stock’s struggle after the global pandemic
The declaration of the global pandemic by the World Health Organization in March 2020 pressured countries across the world to take strict measures to control the spread of coronavirus. As a result, the global stock markets suddenly turned extremely volatile, spiraling down with investors worried about their investments. Notably, the main TSX benchmark tanked by 21.6% in the first quarter of 2020. As uncertainty and fears gripped investors, shares of Air Canada crashed by 67.5% at quarter.
Investors tried to carefully assess the coronavirus’ negative impact on different industries in the coming months, which gave the global stock markets time to stabilize a bit. It helped the main TSX index inch up by more than 30% in the next three quarters, helping it end 2020 with 2.2% gains. However, Air Canada stock’s struggle didn’t end there, as it failed to recover from its big losses seen in the first quarter, finally ending the year with more than 53% value erosion.
While it’s true that tourism, hospitality, and airline were among the worst affected industries by the pandemic, Air Canada stock still looked way too oversold at the end of 2020 as it had fairly strong fundamentals and enough liquidity to support a sustainable financial recovery.
Is it undervalued?
Even as the availability of multiple vaccines led to a big rally in the Canadian stock market in 2021, AC stock failed to benefit from this rally as continued restrictions on air travel kept investors on their toes.
Shares of the largest Canadian passenger airline company fell by another 8.2% in 2022, as investors seemingly ignored early signs of a sharp recovery in air travel demand, which helped Air Canada massively trim its losses on a year-over-year basis.
Where will Air Canada stock be in five years?
Air travel demand and Air Canada’s preparedness to benefit from it could be the two main factors that should determine Air Canada’s stock price movement in the coming years. Bay Street analysts expect the company to report adjusted annual earnings of $3.67 per share in 2023, reflecting a 9% improvement over its adjusted earnings of $3.37 in the pre-pandemic year 2019.
While it’s nearly impossible for anyone to accurately predict where Air Canada stock will be in five years, clear signs that the worst phase of the pandemic might already be over suggest that it has huge upside potential from current levels. Considering that, I expect its share prices to witness a big appreciation in the next five years, which can help its investors beat the broader market.
