Even before the economy was returning to normal, speculative investors were buying up shares of Air
Canada (TSX:AC). In March of last year, the stock briefly hit highs of more than $30. Now, however, with
oil prices rising, the airline stock has been in a tailspin; closing at just $17.42 to finish last week, it’s
down 35% over the past 12 months.
The company’s financials have been deep in the red in each of the past four quarters. The one positive is
that the loss has shrunk – through the first three months of 2022, Air Canada’s net loss of $974 million
was an improvement from the whopping $1.3 billion loss it incurred in the prior-year period. Revenue of
$2.6 billion was also more than three times the $729 million the airline reported a year ago. And in Q1,
the company even reported positive free cash flow of $59 million (versus a negative $1.2 billion a year
ago). The company also reported unrestricted liquidity of $10.2 billion, suggesting that there aren’t any
near-term cash flows for investors to worry about.
But in a world where investors are more wary of companies that are facing adversity, Air Canada has
suddenly become a less desirable holding.
Although the airline is facing challenges, it’s still an industry leader in Canada. As long as it can weather
the storm – and there’s no reason to expect that it won’t – this could be a promising contrarian buy to
hang on to. With strong enough financials to get through an economic downturn, Air Canada is a safer
stock that it looks right now.