For more than a year after the pandemic hit and Air Canada (TSX:AC) stock lost a tonne of its value, it was one of the hottest stocks Canadian investors wanted to buy in anticipation of its recovery and massive growth potential.
However, while the negative impacts the pandemic had on Air Canada didn’t last all that long, they were so disastrous (initially impacting roughly 90% of its revenue) that the stock had to take on a tonne of debt just to stay afloat.
For the first few years after the pandemic, I consistently warned investors that a recovery could take years to materialize. However, now that Air Canada stock has fully recovered and is growing again, it seems as though many investors have forgotten its potential.
And while Air Canada might seem like many to be a recovery stock, and it certainly still has a tonne of potential to do so, it’s also consistently growing year in and year out.
Therefore, if you’re looking for a high-potential growth stock to buy now, here’s why Air Canada is an excellent choice.
Looking forward to not back
In 2023, Air Canada stock finally surpassed the revenue it generated in 2019, completing its recovery and easily doing so with sales of $21.8 billion compared to $19.1 billion in 2019.
Yet, even with its operations now fully recovered and Air Canada stock focused on continuing to grow its sales and improve its profitability, impacts from the pandemic still linger.
There is still a tonne of debt on its balance sheet, and with interest rates still at elevated levels, the stock’s interest expense is much higher (almost double) than what it was in 2019.
However, while there are still signs of the significant impact the pandemic had on Air Canada, the stock is looking forward, not back, and is showing why it’s a growth stock to buy now.
After three straight years of seeing a recovery in revenue, Air Canada is now working to grow and expand its operations, with analysts expecting a more than 5% increase in sales each of the next three years.
More importantly, though, analysts estimate that Air Canada will remain profitable going forward. For example, in 2024, Air Canada is expected to generate normalized earnings per share of $3.74. And in 2025, that’s expected to jump another 14% to $4.26 as Air Canada’s margins improve.
So, with Air Canada stock now fully recovered and with a significant runway of growth ahead of it, there’s no question it’s one of the top growth stocks to buy now.
Air Canada’s growth potential and ultra-cheap valuation make it one of the top stocks to buy
When you consider that Air Canada still trades below $20 a share and has actually lost value over the last year despite its impressive recovery, it’s clear how cheap the stock is today.
At just over $18 at the time of writing, Air Canada is trading at just 4.9 times its expected earnings in 2024 and just 4.3 times its expected earnings in 2025.
Furthermore, with Air Canada expected to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of more than $3.8 billion this year, its forward enterprise value (EV) to EBITDA ratio is just 3.1 times.
For reference, in the three years leading up to the pandemic, Air Canada averaged a forward price-to-earnings ratio of 7.8 times, much higher than the 4.9 times it trades at today.
Therefore, while this high-potential, long-term growth stock trades so cheaply, it’s undoubtedly one of the best investments to buy now.
