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If you are wondering whether Air Canada at around C$19.25 is a bargain or already pricing in a lot of good news, you are not alone. The stock has had mixed returns, with a 5.6% decline over the last 7 days, a 2.1% gain over the last 30 days, a 2.6% decline year to date, but a 19.6% return over the last year. The 3 year and 5 year returns stand at 5.1% and 31.1% declines respectively. These swings are drawing attention back to the big questions of what is already priced into Air Canada and how investors should think about risk at the current level. Recent coverage has focused on its share price recovery over the last year and how investors are reassessing airline stocks in general. This helps frame why the stock has been moving the way it has. On our checks, Air Canada scores a valuation rating of 6/6. Next we will unpack what that means by comparing different valuation approaches and then finish with a more rounded way to think about valuation beyond the headline numbers.

Air Canada delivered 19.6% returns over the last year. See how this stacks up to the rest of the Airlines industry.

Approach 1: Air Canada Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of how much cash a company might generate in the future and discounts those cash flows back to today to arrive at an intrinsic value per share.

For Air Canada, the model used is a 2 Stage Free Cash Flow to Equity approach, based on cash flow projections. The company’s last twelve months Free Cash Flow is about CA$1.26b. Analyst estimates and extrapolations then project annual Free Cash Flow out to 2035, with figures such as CA$409.06m in 2026, CA$1.87b in 2029 and over CA$5b by 2035, all in CA$ terms.

After discounting these projected cash flows, the model arrives at an estimated intrinsic value of CA$125.60 per share. Compared with the recent share price around CA$19.25, this suggests an intrinsic discount of 84.7%. On this DCF view alone, Air Canada appears significantly undervalued.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Air Canada is undervalued by 84.7%. Track this in your watchlist or portfolio, or discover 7 more high quality undervalued stocks.AC Discounted Cash Flow as at Mar 2026

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Air Canada.

Approach 2: Air Canada Price vs Earnings

For profitable companies, the P/E ratio is a useful way to connect what you pay for each share with the earnings that support it. This is often how investors think about value in practice.

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What counts as a "normal" P/E depends a lot on how fast earnings are expected to grow and how risky those earnings are. Higher growth or lower perceived risk can support a higher P/E, while slower growth or higher risk usually calls for a lower one.

Air Canada currently trades on a P/E of 8.77x, compared with an Airlines industry average of 9.93x and a broader peer average of 18.67x. Simply Wall St’s Fair Ratio for Air Canada is 16.50x. This Fair Ratio is a proprietary estimate of what P/E could make sense for the company, given factors like its earnings growth profile, profit margins, industry, market cap and specific risks.

That makes the Fair Ratio more tailored than a simple comparison with peers or the industry, because it adjusts for company specific characteristics rather than assuming one size fits all. Against this Fair Ratio of 16.50x, Air Canada’s current 8.77x P/E suggests the shares screen as undervalued on this metric.

Result: UNDERVALUEDTSX:AC P/E Ratio as at Mar 2026

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Upgrade Your Decision Making: Choose your Air Canada Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. This simply means you pair your story about Air Canada with the numbers you think make sense, link that story to a financial forecast for revenue, earnings and margins, and then compare the Fair Value that comes from that forecast with today’s price. All of this happens inside Simply Wall St’s Community page, where Narratives are updated as new news or earnings arrive. You can see, for example, how one investor might anchor on a more cautious fair value around CA$20.10 while another leans toward a more optimistic view closer to CA$31.16, and then decide for yourself whether the current share price looks high, low or about right for the version of the Air Canada story you believe in.

Do you think there's more to the story for Air Canada? Head over to our Community to see what others are saying!TSX:AC 1-Year Stock Price Chart

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include AC.TO.

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