Is Air Canada Stock a Good Buy in April 2024?

Despite rallying by over 20% in the last six months, Air Canada stock could be a great buy for the long term at current levels.

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Air Canada (TSX:AC) stock has started the year 2024 on a slightly positive note. After rising by nearly 5% in the first quarter, AC stock has extended its gains by another 2% in the ongoing quarter so far, trading at $20 per share with 7% year-to-date gains and a market cap of $7.2 billion. By comparison, the TSX Composite benchmark has risen around 5% this year.

While Air Canada stock has gone up by around 21% in the last six months, could this rally continue to sustain in the coming months? To answer this question and whether it is a good buy right now, let’s look at some key factors that could affect Air Canada’s financial performance and stock price in the near term.

Air Canada: What’s helping it recover?

It’s been about four years since Air Canada stock started witnessing steep declines after the World Health Organization declared COVID-19 a global pandemic in March 2020, which forced administrations and governments in most countries to impose strict travel restrictions and lockdowns. As investors became worried about the impact of these restrictions and lockdowns on the aviation industry, Air Canada’s shares crashed by more than 67% that quarter. The largest Canadian passenger airline company struggled with low passenger demand, reduced capacity, and high operating costs for nearly one-and-a-half years after that.

However, some positive signs, including gradually easing inflationary pressures and better-than-expected global economic growth, indicate that Air Canada’s financials could continue to improve further. Besides the broader market recovery, these signs could be the reasons that have fueled a healthy recovery in Air Canada stock in the last six months.

Is AC stock rally sustainable?

To understand whether the recent rally in Air Canada stock is sustainable, we need to look at its recent financial performance. Interestingly, the Canadian flag carrier’s operating revenue jumped by around 21% YoY (year over year) in 2023 to a new record high of $21.8 billion, thanks to continued strength in air travel demand. Despite an 8% YoY increase in its operating expenses, the airline company posted adjusted annual earnings of $4.56 per share last year, far better compared to its adjusted loss of $2.76 per share in 2022 and even higher than its pre-pandemic year 2019’s adjusted earnings level of $3.37 per share.

These strong financial growth trends also justify AC stock’s rally over the last six months. Despite these gains, however, I find it way too undervalued as it’s still well more than 60% lower than its all-time highs, around $52 per share, posted in January 2020.

Is it a good buy in April 2024?

As Air Canada is gearing up to announce its first-quarter results next week on May 2, investors will look closely at many key factors. Analysts expect Air Canada’s sales to rise by over 6% YoY to $5.2 billion in the first quarter as travel demand remains stable. The company is likely to report a quarterly net loss of seven cents per share, compared to a loss of $0.53 per share a year ago.

Also, during the upcoming earnings event, investors will pay attention to updates on its full-year guidance and ability to maximize profits even amid the ongoing macroeconomic uncertainties and geopolitical tensions, which could decide further near-term direction for Air Canada stock. But as I noted earlier, this cheap-looking stock could maintain its upward momentum in the long run with an improving growth outlook.

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.

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