Shares of Bombardier (TSX: BBD.B) have been trading on a dismal note in 2023 after staging a spectacular rally in the previous two years. In 2021 and 2022 combined, BBD stock popped by 336%, popularizing it among growth investors. Despite rallying by 41.2% in the first quarter of 2023, the stock currently trades with 6.8% year-to-date losses at $48.71 per share and has a market cap of $4.9 billion.
In this article, I’ll discuss some key fundamental factors that can play an important role in deciding Bombardier’s stock price movement in the next five years. But first, let’s take a closer look at what has taken a toll on its investors’ sentiments in 2023.
Why Bombardier stock is falling in 2023
After easing monetary policy to spur economic growth in the post-pandemic era, the United States and Canadian central banks started tightening the policy in 2022 to control inflationary pressures. Most investors initially saw these restrictive policy measures as positive developments, seemingly necessary to tame the rising inflation.
This optimism, however, didn’t last for long as many investors realized that rapidly rising interest rates and persistent inflationary pressures for a longer period could lead the economy into a recession. As these recession fears grew, investors started booking profits in most high-flying growth stocks in 2023. This led to a broader market selloff, driving the TSX Composite Index down by 3% since the end of March. This profit-taking trend could be the primary reason Bombardier stock is trading on a weak note in 2023 after delivering massive gains in the last two years.
Bombardier’s strengthening financial health
It’s important to note that in the last decade, Bombardier has significantly transformed its business model by divesting from aerospace and rail transportation businesses, which also helped it massively strengthen its balance sheet and streamline operations. As a result of this transformation, the company is now able to primarily focus on designing, making, and servicing profitable business jets.
The positive outcome of this transformation is also reflected in the Dorval-headquartered company’s financial growth trends in recent years. For example, Bombardier registered a 13.6% YoY (year-over-year) increase in its 2022 revenue to US$6.9 billion with the help of an increase in its aircraft deliveries. More importantly, the company regained investors’ confidence by posting adjusted annual earnings of US$0.74 per share after reporting losses for three consecutive years. Its 2022 earnings also surprised analysts who expected it to report an adjusted net loss of US$0.64 per share.
In the first two quarters of 2023, Bombardier’s revenue has gone up by 11.6% YoY to US$3.1 billion. As a result, the company’s adjusted earnings in the first half of this year stood firm at US$1.78 per share against an adjusted net loss of US$1.23 per share in the first half of 2022. Similarly, its net profit margin improved significantly in the last year.
Where will Bombardier stock be in five years?
Despite witnessing a big rally in 2021 in 2022, Bombardier stock has lost around 51% of its value in the last five years, making it look undervalued based on its improving fundamental outlook. While it’s nearly impossible to predict where BBD stock will trade five years from now, its expanding annual aircraft deliveries, strong customer response to its new aircraft, and the company’s focus on strengthening aftermarket revenue and profitability should help its share prices stage a strong rally in the coming years. Considering that, Bombardier stock could be a great buy on the dip to hold for the long term.
