Up 37% since November, flight simulator manufacturer and pilot training services giant CAE’s (TSX: CAE) stock kicks off 2025 with a 6% year-to-date decline. Investors might wonder if this small dip presents a buying opportunity for growth in 2025 or if it signals trouble ahead. Let’s dive into what’s moving the needle for this $10.7 billion aviation training stock to asses whether CAE stock is a buy, sell, or hold for this new year.
The good news first: Reasons to buy CAE stock right now
CAE’s core business remains rock-solid in early 2025. As the world’s leading pilot training provider, the company benefits from some powerful tailwinds. The global commercial aircraft fleet is expected to double over the next two decades, and an aging pilot workforce means continuous demand for training services. These aren’t just empty promises — CAE’s record $18 billion order backlog by September 2024 (up 50% year over year) backs up this growth story.
The company also recently made a smart strategic move by increasing its stake in SIMCOM Aviation Training to become the majority shareholder. This $230 million investment should boost recurring revenue and expand CAE’s presence in the growing private aviation market. Better yet, management expects this deal to increase both earnings and cash flow within its first year.
The headwinds: Considerations for holding or selling
However, it’s not all clear skies ahead for CAE stock. The recent slowdown in U.S. pilot hiring, which the market blames on Boeing’s production and delivery delays, could put a drag on CAE’s training revenue. Annual revenue growth has decelerated from 19% in fiscal 2023 to just 4.7% in recent months.
Adding to the uncertainty, long-serving chief executive officer (CEO) Marc Parent is set to retire this year after two decades with the company. While leadership transitions are natural, they can create short-term volatility.
Perhaps the biggest wild card is the potential impact of U.S. trade policies. While aerospace products have historically been exempt from tariffs, ongoing talk of new blanket tariffs has some investors nervous. While CAE’s strong U.S. presence and its contributions to national security (including training 43,000 military aircrew) might help cushion any potential impact, its flight simulators may still be imported from Canada.
A valuation check: CAE stock fairly valued
From a valuation perspective, CAE stock looks fairly priced with a forward price-to-earnings (P/E) multiple of 23.4, roughly in line with the industry average. The price-to-earnings-to-growth (PEG) ratio of 1.2 suggests the stock isn’t particularly expensive given its earnings growth prospects.
Buy, sell, or hold?
Existing shareholders may have to keep holding CAE stock. While the stock has been volatile (with drawdowns as large as 40% since the pandemic), its long-term value growth drivers remain intact. The massive order backlog provides good visibility into future revenue, and the completion of recent restructuring efforts should help margins expand.
However, potential buyers may have to wait. Though the recent dip might look tempting, several near-term uncertainties (CEO transition, Boeing’s ongoing delivery challenges, and potentially unfavourable trade policies) could create better entry points later this year. The stock’s history of significant price swings suggests patience might be rewarded.
For those looking to sell: Unless you need the capital immediately, the current price point might not be optimal. The company’s strong market position, record backlog, and exposure to secular growth trends in aviation suggest potentially better days ahead. The recent cost-cutting measures and strategic investments should start bearing fruit in the coming quarters.
Remember that CAE hasn’t paid a dividend since 2020, so this remains primarily a growth story. If you’re comfortable with some turbulence and have a long-term horizon, the company’s dominant position in pilot training and expanding presence in defence markets make it a solid play on the future of aviation. Just be prepared to buckle up for what could be a bumpy ride in 2025.
