Why Now Is the Time to Buy Air Canada Stock in Bulk

Here are key reasons that make AC stock really attractive to buy in bulk in October 2023.

| More on:
A airplane sits on a runway.

Source: Getty Images

After rallying 30.5% in the second quarter of 2023, Air Canada (TSX:AC) turned negative again in the third quarter, losing nearly all its gains from the previous quarter. AC stock lost nearly 22.4% of its value in the September quarter, as it currently trades at $19.22 per share without any major change on a year-to-date basis, once again driving its market capitalization down to below $7 billion. By comparison, the TSX Composite benchmark ended the third quarter with a 1.9% decline.

Air Canada’s recent declines have worried investors who have been long waiting for a sharp recovery in its share prices. But in this article, I’ll explain why this downside correction could be an opportunity for long-term investors to consider buying AC stock at a big bargain.

Air Canada stock

Interestingly, Air Canada was among the most popular Canadian stocks until the end of 2019 due mainly to its impressive financial growth trends and stock price movement. To give you an idea, the Canadian flag carrier’s total revenue increased by 44% in five years from $13.3 billion in 2014 to $19.1 billion in 2019.

More importantly, its adjusted annual earnings in these five years grew positively by 86%, from $1.81 per share to $3.37 per share. Similarly, its profit margins also gradually expanded during this period. Air Canada’s adjusted net profit margin stood at 4.8% in 2019, higher than 4% in 2014. These impressive growth factors could be the primary reason why AC stock caught investors’ attention by soaring more than 300% in these five years.

However, everything changed rather quickly for Air Canada investors in March 2020 after the World Health Organization declared COVID-19 a global pandemic, forcing countries to impose strict restrictions on physical activity. As expected, like tourism and hospitality, the airline industry was affected by these restrictions. These concerns led to a 67.5% value erosion in AC stock in the first quarter of 2020.

Is it the time to buy Air Canada stock in bulk?

After the March 2020 quarter, Air Canada stock has been on a roller-coaster ride, keeping its investors on their toes. But this volatility, in my opinion, has made the stock look highly undervalued. Let me quickly explain that.

The global pandemic’s negative impact on the company’s financials could be highlighted as the biggest reason why AC stock crashed in 2020. While extended travel restrictions due to new coronavirus variants continued to hurt the air travel demand in 2021, the demand has strengthened significantly in the last year. That key factor helped Canada’s largest passenger airline company reduce its annual adjusted net loss to $2.76 per share in 2022 from a loss of $9.66 per share in the previous year.

In the first half of 2023, Air Canada’s revenue jumped 57.4% year over year. Going forward, Bay Street analysts expect its 2023 annual earnings to be around $3.76 per share, even higher than pre-pandemic 2019’s adjusted earnings of $3.37 per share. Despite solid air travel demand and the company’s ongoing strong financial recovery, AC stock hasn’t seen any appreciation, making it look really attractive to buy in bulk right now to hold for the long term.

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.

More on Stocks for Beginners

A bull and bear face off.
Stocks for Beginners

Navigating Bear Markets: A Top TSX Stock Proven to Outperform

Here’s a top TSX stock you can add to your portfolio today to expect market-beating returns.

Read more »

Business success with growing, rising charts and businessman in background
Energy Stocks

Rising From the Ashes: Canadian Stocks Bouncing Back Stronger

These two growth stocks have surged back after crashing and burning, and it doesn't look like they'll be slowing down…

Read more »

Dividend Stocks

The Allure of Passive Income: Exploring Canada’s Top Dividend Stocks

These dividend stocks provide stellar passive income, with returns that are pretty much guaranteed! So hop in before this deal…

Read more »

clock time
Stocks for Beginners

Why Now Is the Time to Buy 2 Stocks in Bulk

Here are two of the best TSX growth stocks long-term investors can buy in bulk in November 2023.

Read more »

retirees and finances
Stocks for Beginners

GICS vs. High-Yield Stocks: What’s the Better Buy for a TFSA?

The TFSA is already a great way to invest for the future, but how should investors create passive income? Through…

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Dividend Investors: Top TSX Utility Stocks to Buy as Oil Prices Rise

Oil and gas stocks wax and wane, but utility stocks stay strong. Yet, I would consider this newer one if…

Read more »

A meter measures energy use.
Dividend Stocks

Dividend Investors: Top Canadian Utility Stocks for November 2023

Utility stocks have been touted as safe investments, but shares have dropped as of late. However, these two are already…

Read more »

calculate and analyze stock
Stocks for Beginners

Dollarama Stock Is up 18% This Year! Is it a Good Buy Today?

Dollarama (TSX:DOL) stock has grown 18% in 2023 alone but has so much more to give investors who are willing…

Read more »