Why Air Canada Will Continue to Soar

Canada’s largest airline, Air Canada (TSX:AC)(TSX:AC.B) has been on a tear of late, seeing its share price appreciate more than 100% since the beginning of the year. This share price appreciation has been due to a number of key factors which include improving industry fundamentals, improving idiosyncratic fundamentals, and a smaller operational deficiency between itself and its largest Canadian competitor, WestJet Airlines Ltd. (TSX:WJA).

The company’s share price has dipped over the past few trading days, reflecting sentiment that the company’s stock price may have risen too quickly, too fast.

Oil prices continue to rise, a fact which is likely to dampen profitability estimates for airlines such as Air Canada in the medium-term, and the potential for a slowdown in terms of growth expectations moving forward in the air travel industry remain a possibility for investors at every turn (remember 9/11?).

That said, the one redeeming factor many analysts point to with Air Canada is its very low valuation multiple in comparison to its peers. It is true that for years Air Canada failed to turn a profit, even teetering on the precipice of bankruptcy. It is also true that many investors who trusted Air Canada with their retirement savings got burned in the past, many of whom have vowed never to make the same mistake twice.

If, however, things have really changed at Air Canada and recent profits are a sign of what is to come, these may be the same investors who kick themselves in the near future as this airline continues to soar to higher highs.

Invest wisely, my friends.