Don't Miss AI's Third Wave
The S&P/TSX Index has been holding up really well despite the added risks and uncertainties of 2025. From trade wars to geopolitical conflicts, there’s plenty of reasons for it to fall. Given this looming sense of danger, I would expect to find at least one stock on sale.
Air Canada (TSX:AC) is certainly not immune to the potential fallout from these risks. And, trading at rock-bottom valuations, Air Canada’s stock price more than reflects this. But, looking at it from a long-term perspective, it seems like Air Canada stock has gotten way too cheap.
Let’s take a closer look.
Valuation – Air Canada stock is on sale
I want to start off by diving a little deeper into Air Canada stock’s valuation. We know that the stock took a big hit during the pandemic. In fact, it fell to lows of under $13. This was understandable, as travel stopped and the very future of travel was put into question. As a result, Air Canada took some big losses.
The stock has had its ups and downs since then, but today, it’s sunk right back to $15. That’s quite surprising considering the growth that Air Canada has seen since 2019. Not only has air travel (and Air Canada) recovered from the pandemic, but it’s also higher than in 2019, or the pre-pandemic days.
For example, operating revenue came in at $22 billion in 2024. This compares to operating revenue of $19 billion in 2019. Also, adjusted net income came in at $1.3 billion in 2024 versus $917 million in 2019.
Yet, despite all of that, Air Canada stock is trading at a mere six times this year’s expected earnings. I know there are risks, but this seems excessively discounted considering all the progress Air Canada has made, both operationally and financially.
Air Canada: A long-term growth story
The strong traffic trends that Air Canada is seeing is being driven by a few things that I think are worth mentioning. The first is immigration. In Air Canada’s case, the airliner has truly become a global carrier. It has, in fact, added routes that service the needs of those who wish to visit their families across the globe. The second is the growth in premium tickets. And the third is the recovery of business travel.
Simply put, Air Canada has responded to the changing environment. For example, the airliner has added many popular routes such as its recent Pacific expansion. Air Canada’s traffic to the Pacific region, which includes Japan and Korea, increased 25% in 2024.
The years following the pandemic have seen air travel recover at a feverish pace. Today, it’s still going strong. Air Canada does have a few years of intense capital investment ahead, as it buys new aircraft, modernizing and upgrading its fleet. While this capital investment is a short-term drag on cash flows, it will pay off in the medium to long term.
In fact, management laid out its target for 2028, and it looks pretty positive: $30 billion in revenue, a 17% EBITDA margin, and a 5% free cash flow margin. The consensus analyst earnings per share (EPS) estimate for 2028 is just under $3.30 – and this means that Air Canada trades at 4.6 times 2028 expected earnings.
The bottom line
Air Canada stock has never been a stock that I chose to invest in. Today, I am changing my opinion. I think that it’s too cheap to ignore and that the long-term outlook is positive. I would consider buying this stock while it is on sale.
