Despite selling a 49.5% stake in the CSeries program to Quebec for US$1 billion and 30% of the rail division to the Quebec pension fund for US$1.5 billion, Bombardier, Inc. (TSX:BBD.B) can’t seem to get anything right. It continues to burn through cash despite cancelling the dividend and raising so much money from equity raises, bailouts, and bonds.
As investors, it is easy for us to get trapped by the allure of a cheap company. While that trap is easy to fall in, I implore you to avoid this company. Don’t buy shares; don’t get caught in the price-per-share trap. Avoid this company until there is a string of good news.
Even if Prime Minister Trudeau agrees to give the company US$1 billion in a federal bailout, you still shouldn’t invest because, as we can see, the company has not been able to get its stock going with other bailouts.
What went wrong with Bombardier?
Fundamentally, Bombardier’s downfall has everything to do with its CSeries program, which was hit with multi-billion dollar delays that went years over the scheduled launch. This resulted in wasted money and launch partners pulling out. Why wait for the CSeries when there are other airplane manufacturers ready to sell planes immediately?
All of that didn’t matter, though, because at least Bombardier had its incredibly strong railroad division with clients all over the world. However, Bombardier was supposed to have already delivered 80 new streetcars to the TTC in Toronto. But, at press, the company has only shipped 18. And it will only be able to deliver 54 by the end of the year. Now the TTC has to pay $30 million to keep its current fleet operational, and it may demand that Bombardier pay for being late.
On top of all that, there are manufacturers out of China that are beginning to gobble up Bombardier’s business.
When to buy?
As I said before, nothing seems to be going right for Bombardier. It’s been in a cash crunch, it’s been delayed in getting its CSeries launched, and it can’t even deliver its streetcars on time.
Is there ever going to be a time to buy this stock?
If the federal government provides a bailout to Bombardier, that would give it an even greater cash cushion, which would be a sign that the company is not going to go bankrupt. That would be the first thing to look for.
The next thing to look for is if it can deliver the first CSeries to Swiss International Airlines in June. If it can, it will receive payment, which is a big first step. It won’t be anywhere near profitable, but that’s a solid sign.
Finally, it needs to get its rail division under control. If it continues to lose business and suffer fines because of delays, this company is really in trouble. If it can sign any new deals and get its operations streamlined, those will be good catalysts.
The reality is, Bombardier needs a lot of things to go right before I could comfortably suggest buying this stock. While it’s not dying yet, I’m an investor–not a gambler–and right now, this stock feels like a game of blackjack.
