Air Canada (TSX:AC) is a millionaire-maker stock. Or at least it was. In 2012, shares were priced at $1. Eight years later, they surpassed $50. To make $1 million, you needed to invest just $20,000.
But there’s a catch here. Stock prices are a reflection of expectations, not reality. If Air Canada shares are priced for an extremely terrible few years, and the reality is simply a challenging few quarters, the stock could rise considerably. The only question left is, what expectations are currently baked into AC stock?
Should you buy Air Canada stock?
The current crisis is unprecedented. That makes it extremely difficult to put a value on the company. Right now, the business generates multi-million-dollar losses on a daily basis. No company can survive this cash burn forever. If it doesn’t stop, shares theoretically have zero value.
Last quarter, the company had $5.7 billion in cash and reserves. Factoring recent cash burn and new financing likely pegs the sum at a similar figure. That means the business should have roughly two years of runway if conditions remain dire. That’s good news considering the IATA believes airlines will lose $450 billion in passenger revenue in 2020.
On a valuation basis, Air Canada trades at 0.6 times 2020 sales. Analysts predict a return to normal by 2021, forecasting a doubling in revenue, meaning shares trade at just 0.3 times forward sales. That’s two-thirds lower than the stock’s historical average.
The key here is timing. If the world returns to normal by next year, Air Canada is a clear buy. If it takes multiple years, that high upside could turn into 100% downside.
The post Will Air Canada (TSX:AC) Stock Turn $20,000 Into $1 Million? appeared first on The Motley Fool Canada.
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