Advertisement
Canada markets closed
  • S&P/TSX

    22,673.52
    +129.42 (+0.57%)
     
  • S&P 500

    5,615.35
    +30.81 (+0.55%)
     
  • DOW

    40,000.90
    +247.10 (+0.62%)
     
  • CAD/USD

    0.7336
    -0.0000 (-0.00%)
     
  • CRUDE OIL

    82.18
    -0.44 (-0.53%)
     
  • Bitcoin CAD

    81,911.38
    +1,829.10 (+2.28%)
     
  • CMC Crypto 200

    1,249.20
    +50.64 (+4.22%)
     
  • GOLD FUTURES

    2,416.00
    -5.90 (-0.24%)
     
  • RUSSELL 2000

    2,148.27
    +23.23 (+1.09%)
     
  • 10-Yr Bond

    4.1890
    -0.0040 (-0.10%)
     
  • NASDAQ

    18,398.45
    +115.04 (+0.63%)
     
  • VOLATILITY

    12.46
    -0.46 (-3.56%)
     
  • FTSE

    8,252.91
    +29.57 (+0.36%)
     
  • NIKKEI 225

    41,190.68
    -1,033.32 (-2.45%)
     
  • CAD/EUR

    0.6722
    -0.0025 (-0.37%)
     

1 Ridiculously Undervalued Growth Stock Down 34%

Source: Getty Images
Source: Getty Images

Written by Daniel Da Costa at The Motley Fool Canada

There’s no question that numerous TSX stocks remain undervalued in this economic environment. With that being said, though, most stocks have begun to recover, and while they may be cheap, they aren’t extremely undervalued. However, there are a handful of ridiculously undervalued growth stocks to buy now, such as Air Canada (TSX:AC). The airline has yet to recover fully from the pandemic.

Because of its sell-off at the beginning of the pandemic and lack of full recovery to this point, most investors see Air Canada stock as a high-potential value stock that could rally over the coming years as its operations continue to improve and it strengthens its financials.

ADVERTISEMENT

However, while Air Canada certainly is a recovery stock, it’s also a high-quality growth stock. The airline is consistently expanding its operations and growing its business, especially with the continuous growth in popularity of travel and tourism.

Therefore, while Air Canada trades roughly 34% off its 52-week high, there’s no question that it’s one of the best growth stocks to buy now, especially while it’s ridiculously undervalued.

With the pandemic in the rear-view, Air Canada is now focused on growth

Ever since the pandemic ended and restrictions for indoor capacity and travel were lifted, Air Canada has been once again setting record revenues.

In fact, for six straight quarters now dating back to the fourth quarter of 2022, Air Canada has earned record quarterly revenue showing that its operations have now fully recovered even if its share price and profitability haven’t yet.

With such consistent growth, though, it’s only a matter of time before the rest follows suit, especially with the stock now paying down some of the billions in debt it took on during the early stages of the pandemic just to stay afloat.

Therefore, while this high-potential growth stock continues to trade ridiculously cheap, it is certainly one of the best stocks to keep your eye on today and consider taking a position in for the long haul.

How undervalued is the Canadian growth stock?

Air Canada stock certainly offers a significant discount while trading roughly 34% off its 52-week high. However, when you consider that the stock is trading roughly 67% below its pre-pandemic high, there is certainly a tonne of potential for the stock over the coming years as the economic environment improves, interest rates decline, and Air Canada reduces its debt.

In fact, right now, Air Canada trades at just 4.7 times its expected earnings over the next 12 months, which is exceptionally cheap for any stock.

Furthermore, Air Canada is trading at a forward enterprise value to earnings before interest, taxes, depreciation and amortization (EV/EBITDA) ratio of 2.7 times today, showing how ridiculously undervalued the growth stock is.

Not only is it cheap even when you consider all the debt it’s taken on (enterprise value includes debt in its calculations), but when you compare it to its valuation prior to the pandemic, it’s clear just how cheap Air Canada is today.

In the five years leading up to the pandemic, Air Canada’s forward price-to-earnings (P/E) ratio had an average value of 5.9 times, which is much higher than the 4.7 times forward P/E ratio it trades at today.

Furthermore, it averaged a forward EV/EBITDA ratio of just over 2.9 times in the five years leading up to the pandemic, which is also above the 2.7 times it trades at today.

Price forecast

Finally, it’s also worth mentioning that the average analyst target price for Air Canada is $27.28, a more than 55% premium to where it trades today.

Therefore, if you’re looking for a high-potential growth stock to buy now that has years of potential but is also considerably undervalued, there’s no question that Air Canada is one of the best stocks to buy before it starts to recover and sees a sustained rally back to fair value.

The post 1 Ridiculously Undervalued Growth Stock Down 34% appeared first on The Motley Fool Canada.

Should you invest $1,000 in Air Canada right now?

Before you buy stock in Air Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Air Canada wasn’t one of them. The 10 stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $17,363.76!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 26 percentage points since 2013*.

See the 10 stocks * Returns as of 6/3/24

More reading

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

2024