Shares of Air Canada (TSX: AC) stock may have risen 8% in the last month, but it comes after a huge downturn in share price for the airliner. There have been numerous reasons for the drop, yet perhaps the biggest of course is the pandemic.
So now that the world is slowly starting to get back to normal, what should investors do with their Air Canada stock? Let’s get into it.
Growth! Just not in shares
Air Canada stock has continued to bring in large profits during the last year as growing air travel demand means more customers. Even still, shares of the airliner have fallen further. Even after a rise in the last month, the company has faced numerous reasons for the stock to take a fall.
Part of the recent fall came from Air Canada customers having several issues. Customers with disabilities reported feeling like “parked luggage” by Air Canada stock. Furthermore, North American airlines, including Air Canada stock, were ranked last in terms of online flights.
Now of course management came out to address both issues. And that was a positive note. Yet while demand has increased, Air Canada stock has yet to return to the volume of flights it had back in 2019. So what exactly has the stock been doing?
Earnings aren’t enough
During third-quarter results, shares of Air Canada stock fell despite producing a profit. The airline reported net income of $1.3 billion for the quarter, which was a huge increase from the $508 million loss reported the year before. Yet shares remain lower than they were even in the early days of the pandemic with huge losses on board.
It doesn’t seem to be only Air Canada stock, however. Airlines in general are seeing a slump in share price. This could come as the sector continues to see borrowing costs hit home. And with slower consumer spending, investors could fear the future for these stocks.
So if consumer spending really does pullback in the near future, it’s only more bad news for Air Canada stock. Especially after a recent strike by pilots forced other companies to impose large wage increases.
Any good news?
Demand continues to remain strong for now for Air Canada stock, and jet fuel prices have come down from last year. That being said, the conflict in the Middle East could cause crude oil prices to soar again, even as much as 75% according to some estimates. And that will increase jet fuel prices once more.
But the company seems prepared for that, reducing its net debt by $2.1 billion, hedging against fuel in the fourth quarter, and giving itself overall strong financial flexibility. Yet for now, it’s still unclear whether investors will be convinced.
All in all, the company seems undervalued at the moment. Its valuation is far below where it was both before and during the pandemic. However, analysts now believe the stock could rebound quite significantly in the next year as the market recovers. Back to $50? Perhaps not. But even a $10 share increase would be immense.
Bottom line
The immediate future doesn’t look so great for Air Canada stock. Higher fuel prices, lower demand, and cost-cutting measures could hurt the stock. However, looking long term the airliner seems to be making the right moves for long-term growth. With that in mind, the choice is up to you, your financial goals, and risk compatibility.
