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For more than a year after the pandemic and Air Canada (TSX:AC) lost a ton of its value, it was one of the most popular stocks that Canadian investors wanted to buy in anticipation of its recovery and huge growth potential.
However, while the negative impacts the pandemic had on Air Canada didn't last that long, they were so disastrous (initially affecting about 90% of its revenue) that the stock had to take on a ton of debt just to stay afloat.
During the first years after the pandemic, I constantly warned investors that the recovery could take years to materialize. However, now that Air Canada stock has fully recovered and is growing again, it seems many investors have forgotten its potential.
And while it may seem to many that Air Canada is a recovery stock, and it certainly still has a lot of potential to do so, it is also growing steadily year after year.
So, if you're looking for a high-growth potential stock to buy now, here's why Air Canada is a great choice.
Hoping not to come back
In 2023, Air Canada stock finally surpassed the revenue it generated in 2019, completing its recovery and easily doing so with sales of $21.8 billion, up from $19.1 billion in 2019.
However, even with its operations now fully recovered and Air Canada stock focused on continuing to grow its sales and improve its profitability, the impacts of the pandemic still persist.
There's still a ton of debt on its balance sheet, and with interest rates still at elevated levels, the stock's interest expense is much higher (almost double) than in 2019.
However, while there are still signs of the significant impact the pandemic had on Air Canada, the stock looks forward, not back, and shows why it's a growth stock to buy now.
After three consecutive years of revenue recovery, Air Canada is now working to grow and expand its operations, with analysts expecting a more than 5% increase in sales in each of the next three years.
Most importantly, however, analysts estimate that Air Canada will remain profitable in the future. For example, in 2024, Air Canada is expected to generate normalized earnings per share of $3.74. And in 2025, it is expected to rise another 14% to $4.26 as Air Canada's margins improve.
So, with Air Canada stock now fully recovered and a significant growth runway ahead, there's no doubt it's one of the biggest growth stocks to buy now.
Air Canada's growth potential and ultra-cheap valuation make it one of the top stocks to buy.
Considering that Air Canada is still trading below $20 per share and has actually lost value over the past year despite its impressive recovery, it's clear how cheap the stock is today.
At just over $18 at the time of writing, Air Canada trades at just 4.9 times its expected 2024 earnings and just 4.3 times its expected 2025 earnings.
Furthermore, since Air Canada is expected to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of more than $3.8 billion this year, its future enterprise value (EV) to EBITDA ratio is just 3.1 times.
For reference, in the three years before the pandemic, Air Canada averaged a forward price-to-earnings ratio of 7.8 times, much higher than the 4.9 times it trades today.
So, while this high-potential, long-term growth stock is trading at such a low price, it is undoubtedly one of the best investments to buy now.
