Can Air Canada Stock Recover in 2024?

Air Canada (TSX:AC) stock remains close to its COVID-19 era lows, even though its business has recovered.

| More on:
Aircraft Mechanic checking jet engine of the airplane

Source: Getty Images

Air Canada (TSX:AC) has been one of the worst-performing Canadian stocks over the last five years. Down 57% in a period in which the broader markets have risen, it has chronically underperformed. Amazingly, this underperformance has occurred despite a period of rising earnings for the company.

After losing about $4 billion in 2022, Air Canada’s earnings steadily recovered in 2022 and 2023, to the point where it is now earning more than it did in 2019, before the COVID-19 pandemic hit Canada. Despite this, the stock trades at $16.99, while it traded at $54 before the pandemic. The question is, why isn’t Air Canada re-taking its previous valuation?

Buffett sold

The reason why airline stocks in general, and Air Canada in particular, remain down for the count is because sentiment toward the sector is poor. A possible reason for that is the fact that Warren Buffett sold airline stocks during the COVID-19 pandemic.

Warren Buffett is one of the most influential investors in the world. He is the wealthiest stock market investor ever, and widely considered to be one of the best of all time. His moves are widely copied by investors the world over, including managers of large and influential institutional funds. The mere fact of him not liking a particular investment can result in that investment being out of favour for a long time.

Buffett sold airline stocks in 2020 because he thought that the pandemic made them too risky. Shortly after Buffett sold, the airlines did lose money for a prolonged period of time. At the time, his move looked prudent. However, the airlines quickly recovered to their pre-COVID revenue and earnings levels. There has been no recent talk about bringing back COVID-19 public safety measures . It would appear the markets are being too pessimistic about airlines.

Valuation

The reason why I think AC stock and other airlines are mainly trading based on Buffett’s vote of non-confidence is because they have gotten outrageously cheap yet still nobody’s buying. At today’s prices, Air Canada trades at a mere 2.9 times earnings and 1.4 times operating cash flow. It’s probably one of the cheapest major companies in Canada. And, its revenue and earnings are both growing. The long-term opportunity is certainly there. The only question is how long it takes for the markets to finally realize it.

Foolish takeaway

Air Canada stock has taken investors on a wild ride over the years. It crashed from $55 all the way down to $12 during the pandemic. It then recovered to $29 when the vaccine was announced, and crashed all over again from that level.

Holding this stock is a test of patience, to be sure. But the long term looks much rosier than the recent past. None of the risks facing Air Canada today – rising oil prices, customer complaints, etc. – are anything like the COVID-19 era catastrophe that took the stock below $20 in the first place. Trading at about three times earnings today, AC stock looks like a compelling opportunity.

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 Andrew Button 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.

More on Coronavirus

Aircraft wing plane
Coronavirus

Should You Buy Air Canada Stock While it’s Below $18?

Air Canada (TSX:AC) stock is below $18. Should you invest?

Read more »

Illustration of data, cloud computing and microchips
Stocks for Beginners

3 Canadian Stocks That Could Still Double in 2024

These three Canadians stocks have been huge winners already in 2024, but still have room to double again in the…

Read more »

A airplane sits on a runway.
Coronavirus

3 Things to Know About Air Canada Stock Before You Buy

Air Canada stock continues to hover below $20 despite the sharp rise in travel demand seen across the industry. What's…

Read more »

tech and analysis
Stocks for Beginners

If You Invested $1,000 in WELL Health in 2019, Here is What It’s Worth Now

WELL stock (TSX:WELL) has fallen pretty dramatically from all-time highs, but what if you bought just before the rise? Should…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Coronavirus

2 Pandemic Stocks That Are Still Rising, and 1 Offering a Major Deal

There are some pandemic stocks that crashed and burned, while others have made a massive comeback. And this one stock…

Read more »

Dad and son having fun outdoor. Healthy living concept
Dividend Stocks

1 Growth Stock Down 15.8% to Buy Right Now

A growth stock is well-positioned to resume its upward momentum in 2024 following its strong financial results and business momentum.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Stocks for Beginners

3 Things About Couche-Tard Stock Every Smart Investor Knows

Couche-tard stock (TSX:ATD) may be up 30% this year, but look at the leadership and history of the stock to…

Read more »

Plane on runway, aircraft
Coronavirus

Can Air Canada Double in 5 Years? Here’s What it Would Take

Air Canada (TSX:AC) stock has gone nowhere since 2020. Can this change?

Read more »