Air Canada (TSX:AC) stock has started 2024 on a mixed note after losing nearly 62% of its value in the previous four years. AC stock failed to recover in the last couple of years, even as its financials witnessed a healthy recovery in the post-pandemic era.
With the expectations of multiple interest rate cuts in 2024, the economic growth and demand for air travel in Canada could witness improvement, which could help the Canadian flag carrier post stronger financial results in the future. But does that alone make Air Canada an attractive stock to buy in February 2024?
To answer this question, I’ll highlight some important factors you want to consider before investing in this volatile stock. But first, let’s quickly review Air Canada stock’s struggle in recent years.
Air Canada stock
A massive selloff in Air Canada stock started in the first quarter of 2020, when it tanked by around 68% after the World Health Organization declared COVID-19 a global pandemic. Investors feared that the pandemic could lead to a sudden, massive decline in the demand for air travel globally, which would ultimately financially hurt the airline industry.
Although AC stock has staged a recovery in some quarters since then, it has largely remained highly volatile with growing macroeconomic challenges. As a result, it has seen declines in 10 out of the last 16 quarters. In 2024 so far, Air Canada stock has slid by 3.3% to currently trade at $18.08 per share, taking its market cap to $6.5 billion.
Key factors to consider before investing in it
A key thing to consider before you invest in any stock is how well it is doing financially. Air Canada stock might not let you down on this aspect.
Air Canada has a strong competitive position in the Canadian market, where it dominates a significant portion of the domestic and international passenger traffic. This factor helps the airline company generate healthy cash flows each year and maintain a strong balance sheet even during difficult economic environments.
While Air Canada will release its full-year 2023 earnings report later this month, its revenue jumped 40.3% year over year to $16.7 billion in the first three quarters of the year. With the help of a consistent increase in demand, the company posted positive adjusted earnings of $4.73 per share in these three quarters combined, compared to an adjusted net loss of $2.46 per share in the same period of the previous year. Besides the demand recovery, its diversified revenue streams, including cargo services, drove this strong growth.
In the September 2023 quarter, Air Canada’s operating margin also improved to 22.3% from 12.1% a year ago, reflecting its focus on controlling costs and increasing efficiency.
Is Air Canada stock a buy in February 2024?
Given all the positive factors mentioned above, I find Air Canada stock to be way too undervalued at the current market price, with the potential to yield outstanding returns in the long run. Even though the macroeconomic uncertainties may make its share prices unstable in the short term, the market might not overlook its strong financial growth in the long term. That’s why you may consider buying it now before it’s too late.
