What happened

Shares in airplane simulator and training company CAE (CAE 1.49%) fell a whopping 50.5% in March, according to data provided by S&P Global Market Intelligence. It's hard to think of a set of circumstances more likely to hit the company's potential than the coronavirus pandemic, and unfortunately the company's stock price is taking a battering as investors rush to price in its diminishing long-term earnings prospects.

In a nutshell, CAE is a play on the need to train pilots for long-term growth in commercial aviation. The COVID-19 pandemic is calling into question the previous assumptions about its long-term prospects.

An airplane simulator.

Image source: Getty Images

In the near term, there is the obvious issue of the closing of borders and the ending of air travel between countries and the losses that airlines are facing. In the intermediate term, there's the fear that a combination of airline bankruptcies and a lingering hesitation by consumers will lead to a step down in demand for air travel and, therefore, pilot demand.

So what

A lot will depend on the duration of the pandemic and the measures to deal with it. The longer it goes on, the more at risk the commercial aviation industry will be. That's not great news for investors in the industry, particularly CAE.

In addition, even after the pandemic is contained, it's not clear if strict border controls will remain in place for an extended period.

Now what

If you take the view that the pandemic will eventually pass and economic activity, including air travel, will normalize, then there's a case for looking at buying CAE stock after the massive sell-off. The company still has a dominant position in simulators and is growing its training services in order to fully take advantage. Therefore, it offers a way to play a potential recovery in civil aviation without dealing with the difficulties inherent in, say, picking one airline stock to recover versus another.

In this context, the stock is worth a look, but just be aware that the near-term risk is significant, and upcoming earnings are going to look ugly. In addition, when even Boeing's CEO is downplaying thoughts of a swift recovery in commercial aviation, it's probably a good idea to exercise some caution.