1 Ridiculously Undervalued Growth Stock Down 34%

With Air Canada stock trading more than 30% off its 52-week high, it’s easily one of the most undervalued growth stocks on the TSX today.

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There’s no question that numerous TSX stocks remain undervalued in this economic environment. With that being said, though, most stocks have begun to recover, and while they may be cheap, they aren’t extremely undervalued. However, there are a handful of ridiculously undervalued growth stocks to buy now, such as Air Canada (TSX:AC). The airline has yet to recover fully from the pandemic.

Because of its sell-off at the beginning of the pandemic and lack of full recovery to this point, most investors see Air Canada stock as a high-potential value stock that could rally over the coming years as its operations continue to improve and it strengthens its financials.

However, while Air Canada certainly is a recovery stock, it’s also a high-quality growth stock. The airline is consistently expanding its operations and growing its business, especially with the continuous growth in popularity of travel and tourism.

Therefore, while Air Canada trades roughly 34% off its 52-week high, there’s no question that it’s one of the best growth stocks to buy now, especially while it’s ridiculously undervalued.

With the pandemic in the rear-view, Air Canada is now focused on growth

Ever since the pandemic ended and restrictions for indoor capacity and travel were lifted, Air Canada has been once again setting record revenues.

In fact, for six straight quarters now dating back to the fourth quarter of 2022, Air Canada has earned record quarterly revenue showing that its operations have now fully recovered even if its share price and profitability haven’t yet.

With such consistent growth, though, it’s only a matter of time before the rest follows suit, especially with the stock now paying down some of the billions in debt it took on during the early stages of the pandemic just to stay afloat.

Therefore, while this high-potential growth stock continues to trade ridiculously cheap, it is certainly one of the best stocks to keep your eye on today and consider taking a position in for the long haul.

How undervalued is the Canadian growth stock?

Air Canada stock certainly offers a significant discount while trading roughly 34% off its 52-week high. However, when you consider that the stock is trading roughly 67% below its pre-pandemic high, there is certainly a tonne of potential for the stock over the coming years as the economic environment improves, interest rates decline, and Air Canada reduces its debt.

In fact, right now, Air Canada trades at just 4.7 times its expected earnings over the next 12 months, which is exceptionally cheap for any stock.

Furthermore, Air Canada is trading at a forward enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio of 2.7 times today, showing how ridiculously undervalued the growth stock is.

Not only is it cheap even when you consider all the debt it’s taken on (enterprise value includes debt in its calculations), but when you compare it to its valuation prior to the pandemic, it’s clear just how cheap Air Canada is today.

In the five years leading up to the pandemic, Air Canada’s forward price-to-earnings (P/E) ratio had an average value of 5.9 times, which is much higher than the 4.7 times forward P/E ratio it trades at today.

Furthermore, it averaged a forward EV/EBITDA ratio of just over 2.9 times in the five years leading up to the pandemic, which is also above the 2.7 times it trades at today.

Price forecast

Finally, it’s also worth mentioning that the average analyst target price for Air Canada is $27.28, a more than 55% premium to where it trades today.

Therefore, if you’re looking for a high-potential growth stock to buy now that has years of potential but is also considerably undervalued, there’s no question that Air Canada is one of the best stocks to buy before it starts to recover and sees a sustained rally back to fair value.

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.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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