Air Canada (TSX:AC) hit all-time highs earlier this year but has since been on the decline and it could be a great time for investors to buy on the dip. In the past month, the share price has dropped 9% and it has also dipped into oversold territory.
One way to measure whether a stock is oversold is by looking at its Relative Strength Index (RSI), and if it has dipped below 30. RSI looks at the average gains and losses of a stock price over typically the past 14 trading days, and the greater the losses are in comparison to the gains, the lower the RSI level is.
While a stock being oversold doesn’t guarantee that it will bounce back, it does help provide an indication of just how lopsided losses may have been recently. In the past year, Air Canada’s stock has come close to going oversold but it has been able to stay above an RSI of 30, making this recent event that much more unique and a great buying opportunity.
At a price-to-earnings ratio of just three, it’s hard to find a better deal for a stock that has done so well recently. Even with the dip in price, Air Canada’s share price is still up nearly 60% over the past 12 months.
Although the airline’s sales were up 12% in its most recent quarter, a bigger net loss from a year ago resulted in the stock seeing a sell-off. While rising oil prices may chip away at the company’s profit margin, a strong economy, and in particular a strong oil and gas industry, will help ensure that airlines like Air Canada remain busy.
