Air Canada Stock: Buy, Sell, or Hold?

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Authored by Jitendra Parashar on The Foolish Canada website.

Air Canada (TSX:AC) is working towards a strong comeback in 2023 after experiencing a downward trend for three consecutive years. The AC stock has achieved a 21.7% increase in value so far this year, reaching a current trading price of $23.60 per share. As a result, the market capitalization of Air Canada has reached $8.5 billion.

Prior to examining whether it is advisable to purchase, offload, or retain Air Canada shares at present, let us delve into the company's most recent financial outcomes unveiled just days ago.

Air Canada Soars Post Q2 Results

During the period from April to June in 2023, Air Canada experienced a notable rebound in its financial performance due to the increasing desire for air travel. This highlights the airline's ability to remain strong and adjust its strategies accordingly. The surge in demand resulted in a 36.3% year-on-year increase in total revenue for the last quarter, reaching a total of $5.43 billion. This surpassed the predictions made by financial experts, who estimated the revenue to be around $5.15 billion.

Moreover, the airline's modified EBITDA (profit before interest, taxes, depreciation, and amortization) reached $1.22 billion, demonstrating a considerable enhancement compared to the $154 million reported in the second quarter of 2022. Likewise, its modified EBITDA margin also experienced a noteworthy growth, increasing to 22.5% in the second quarter from a mere 8.4% in the initial quarter.

Air Canada's latest financial report shows an increase in income and a notable 31.4% decrease in the cost of jet fuel, leading to adjusted quarterly earnings of $1.85 per share. This is a significant improvement compared to the adjusted net loss of $1.18 per share during the same period last year.

In general, the recent improvement in Air Canada's financial situation can be credited to the airline's ongoing emphasis on efficient cost management methods and the increase in people wanting to travel, which resulted in a 42% year-over-year increase in its quarterly passenger revenues. These encouraging factors raised investors' trust and caused a 3.2% rise in Air Canada's stock during its earnings event.

Is AC Stock Worth Buying?

Air Canada's stock has been negatively impacted in recent years due to a decrease in people traveling by air. However, there has been a hopeful resurgence in demand for air travel, which can be advantageous for worldwide airline companies, including Air Canada.

It is evident that Air Canada has made substantial progress in the initial six months of 2023, as indicated by the fact that its stock prices have regained almost 22%. This financial revival also highlights the efficiency of the biggest Canadian airline in terms of passenger transportation and its knack for taking advantage of the recovering travel industry. Moreover, the recent outcomes further demonstrate Air Canada's strong business structure and its potential for continuous expansion in the period following the pandemic.

Nevertheless, investors remain anxious about the potential occurrence of a forthcoming economic downturn. They apprehensively anticipate that such a recession could significantly impact the travel industry's demand, consequently contributing to Air Canada's ongoing decline in stock value, which currently stands at over 51% below the closing price of $48.51 per share that was observed in 2019 prior to the pandemic. It is impossible to completely overlook the likelihood of these recession worries further influencing the fluctuation of Air Canada's stock price in the immediate future.

However, if your intention is to purchase Air Canada shares at present to retain them for a substantial period (at least the next decade), it appears to be a compelling investment opportunity considering the current market value.

The article titled "Air Canada Shares: Purchase, Dispose, or Maintain?" has been published on The Motley Fool Canada.

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The Motley Fool does not hold any stance on the stocks discussed. The Motley Fool follows a policy of transparency. Fool contributor Jitendra Parashar does not have any investment in the stocks mentioned.