Bombardier (TSX: BBD.B), the Montreal-based manufacturer of transporation services, has witnessed quite a few lows in the past two years. The firm was already struggling when the pandemic hit it like a ton of bricks. It trimmed its business and operational costs to control the spiralling debt, which sits at over $10 billion at present.
Why is Bombardier (TSX:BBD.B) stock price so low?
The aviation industry is prone to business cycles and vulnerable to changes in the economy. The company relies upon the aviation and transportation sector, global travel, and movement in air cargo.
Too much dependence on these factors makes the sector and industry risky for the investors and stakeholders, as was seen last year due to the pandemic.
The pandemic outbreak impacted global demands and disrupted the global supply chain. As lockdowns were imposed and reimposed, it created chaos and hampering normal business operations and creating uncertainty in the economy.
Bombardier’s global operations were thus impacted, which includes key geographies like North America and Europe. Manufacturing and delivery-related activities were suspended. It only resumed after May 2020, with newer pandemic protocols in place.
The company had to make a few special one-time arrangements. It slashed its workforce and also recorded a one-time US$ 56 million charge on its books of accounts in FY2020, adding to the operational burden.
The revenue too has been on the decline for the past three consecutive years, while debts spiralled.
All these factors had a direct impact on Bombardier’s stock price.
Investors and other stakeholders must exercise caution in these challenging times and may wait for the business operations to resort to pre-pandemic levels.
Is Bombardier stock a good buy?
Bomardier’s management believes that the revenue of the company can touch nearly US$ 7.5 billion by FY2025 and free cash flow will be positive in FY2022. It added that the free cash flow would be above US$500 million by the end of FY2025, as per the quarterly report of Q1, 2021
The company's management is also keen to strengthen its aftermarket services, and jack it up from 18 per cent revenue contribution in FY2020 to nearly 27 per cent revenue contribution by the end of 2025.
The management also suggested strategies to pay off its huge debt burden, increase its manufacturing footprints, and improve labor productivity.
As per Refinitive date, the forward EV/EBITDA is 12.20x for the company, which is higher than the industry median EV/EBITDA of 11.89x.
In FY2020, United States contributes 56.61 per cent, Canada contributes 10.82 per cent. In contrast, the European region revenue contribution was 12.37 percent.
Considering its business model, nearly US$ 1,050 million was posted as revenue from the manufacture of business aircraft while US$ 269 million revenue from services for the quarter ending March 31, 2021.
Earlier this year, French train manufacturer Alstom SA completed its €5.5 -billion acquisition of Bombardier’s transportation business.
Following the deal, Bombardier stock have bounced back by over 200 per cent in 2021.
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BBD.B stock performance and financial strength of the company
Bombardier stock price soared by nearly 160 per cent in last nine months and up 245+ per cent in one year.
The industrial stock’s price is hovering between its 52-week low of C$ 0.26 on October 30, 2020 and 52-week high of C$ 1.48 on July 06, 2021.
Bombardier’s revenue has been on the decline for three straight years. The revenue posted for the year ending December 31, 2020 is US$ 6,487 million, down 13.4 per cent year-over-year (YOY).
Moreover, the quarterly financial statements show total revenue of US$ 1,341 million for the quarter ending March 31, 2021, down 11.9 per cent from its prior quarter.
The company went public with its IPO on February 11, 1981, has 2.13 billion outstanding shares and a market cap of C$ 3.59 billion.