Air Canada (TSX:AC) stock is continuing to struggle in 2023, despite its strengthening financial performance. AC stock has seen 7.3% value erosion so far in 2023 to currently trade at $17.97 per share, trimming its market cap to $6.4 billion. By comparison, the TSX Composite Index currently trades with a minor 1.9% year-to-date increase.
Before we discuss whether AC stock is worth buying right now, let’s take a closer look at some important factors that could be hurting its stock price movement of late.
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Reviewing AC stock’s performance
Notably, AC stock has consistently been declining since 2020. At the end of 2019, the stock was trading at $48.51 per share and is currently down around 64% from those levels.
After the COVID-19 pandemic, Air Canada’s stock price performance was significantly affected by various factors. First, the unprecedented travel restrictions and lockdowns led to a sudden steep decline in air passenger demand, which severely impacted Air Canada’s revenue and earnings. Although the largest Canadian passenger airline implemented cost-cutting measures, tried to increase focus on its air cargo segment, and received government assistance to navigate the crisis, the slow pace of vaccination initially and the emergence of new virus variants from time to time affected its financial recovery.
Second, Air Canada, like most airline companies across North America, also faced challenges in ramping up operations to pre-pandemic levels due to labour shortages and logistical hurdles.
On the positive side, the easing of travel restrictions and strong demand for travel in the latter part of the post-pandemic period provided a boost to ticket sales, strengthening its revenue. However, AC stock’s performance largely remained dismal due to the broader market weakness amid growing macroeconomic uncertainties.
Is AC stock a buy now?
Although Air Canada’s share price movement has been disappointing in recent years, its improving financial position amid the ongoing post-pandemic recovery makes AC stock look very attractive, in my opinion. In the first three quarters of 2023, the Canadian flag carrier’s revenue has gone up by 26.5% year over year to $11.8 billion as the air travel demand and advanced bookings continue to strengthen. With this, the company’s adjusted earnings in the first nine months of 2023 stood at $5.26 per share, significantly better than its adjusted earnings of just five cents per share in the same period of the previous year.
It’s also important to note that the macroeconomic environment is likely to improve in the coming years as central banks in the United States and Canada might ease their monetary stance due to easing inflationary pressures and softening job market. If the inflation continues to ease, you can expect the broader market to stage a recovery, which should help some beaten-down but fundamentally strong stocks like Air Canada inch up fast.
While the possibility of a recession keeping the Canadian stock market volatile in the near term can’t be ruled out completely, the return of business travel and Air Canada’s ability to manage its debt levels and rebuild its network efficiently in a changing travel environment make AC stock look undervalued to buy for the long term at current levels.
