Air Canada (TSX:AC) is one stock that I had been holding for a while but sold out of recently. It was not a profitable trade: I exited at about the same price I had paid for the shares. The reason I sold AC stock was not necessarily that I thought AC had become a bad investment. To this day, I still think it’s probably eventually headed to $30, or 50% higher than it is now. However, I started having serious doubts about the company’s long-term trajectory, feeling that it was probably a pure “value” play with little in the way of long-term compounding potential. Surmising that I could do better elsewhere, I sold all of my AC shares.
The question investors will want to ask themselves is, “Is Air Canada stock a buy, sell, or hold today, in February of 2026?” Although I personally sold my AC shares, that doesn’t mean the stock is unsuitable for every investor. Those seeking a relatively quick value play may do well with Air Canada. In the ensuing paragraphs, I’ll go over the main strengths and weaknesses of Air Canada, so you can decide whether it’s a fit for your portfolio in February of 2026.
Value
One of the things that Air Canada undeniably has going for it right now is an optically cheap valuation. At today’s price, AC stock trades at:
- 0.3 times sales.
- 2.7 times book value.
- 1.5 times operating cash flow.
- 9 times free cash flow (FCF).
These are pretty low multiples. Long-term U.S. treasuries yield 4.2% right now, while AC shares have an 11% FCF yield. Even with a 5% risk premium, AC still has a higher estimated DCF value than treasuries do. So, as long as the company does not actively shrink, it is worth the investment today.
Headwinds
Despite the fact that Air Canada is optically cheap, there are some serious questions to be asked about its future trajectory. While AC’s FCF yield trounces the risk-free opportunity cost and is worth investing in if it does not shrink, there are some factors likely to cause FCF to shrink in the near term. These include:
- A massive capital expenditure (CAPEX) program. Air Canada is expecting to spend up to $5 billion per year on CAPEX in 2026 and 2027. This spending is going to go toward buying airplanes, primarily. The spending is greater than Air Canada’s FCF most years, the result of AC expecting to do only breakeven FCF in the next two years. In this sense, Air Canada is expected to “shrink” in the near term.
- The power of labour unions. This past August, Air Canada’s flight attendant union staged a strike, demanding more pay and compensation for duties performed while not in the air. Air Canada was hoping that the government would legislate the flight attendants back to work. It did not, and AC management ultimately had to cave to their demands, which cost it an estimated $350 million.
The factors above call into question whether Air Canada’s free cash flow will increase at any point in the near term. The CAPEX in particular argues for it shrinking in the next two years. Nevertheless, nine times free cash flow is a pretty low multiple. I think investors will likely do “OK” with Air Canada stock in the near term, probably hitting $30 before five years are up. That’s a gain, but not a spectacular one, so I’ve decided to stay away from AC, seeing more value elsewhere.
