Joby Aviation (NYSE:JOBY) got started with the big idea of using small electric air taxis for short flights and so far it’s doing a pretty good job realizing that vision.
Joby’s aircraft are able to fly up to 100 miles and both takes off and lands vertically, making it a good solution for flights into and out of urban areas without the need for traditional runways, so is this innovative aviation startup a buy, sell or hold today?
How Far Has Joby Aviation Gotten?
Joby’s aircraft aren’t yet approved for commercial use but they’re on the cusp of success. In its Q4 report, Joby was in the penultimate stage of five of regulatory approval for use in the US. The final hurdle is set to be leapt over in the next 12 months assuming all goes well.
A test fleet of five aircraft is in the works, including two that have been delivered to Edwards Air Force Base as part of an ongoing collaboration with the Department of Defense.
A big win for management was securing a huge Toyota investment. Late last year, Toyota’s top brass agreed to provide another $500 million in funding for Joby, bringing its total investment to nearly $900 million.
Toyota has been a key partner for Joby Aviation for several years, providing not only funding but manufacturing know-how to the aviation startup.
Joby has also managed to secure partnership deals with both Delta Airlines and Virgin Atlantic to launch electric air taxi services in the US and UK. These partnerships hope to use existing airline hubs at major airports as jumping-off points for shorter flights to close-by destinations on Joby’s aircraft. If successful, the flights are expected to save passengers considerable time while remaining competitively priced with existing transportation alternatives.
All of this, however, hasn’t yet translated into any kind of meaningful sales for the company. In the past 12 months, Joby has been able to deliver just $136,000 in revenue. So, while there are many exciting developments taking place at Joby Aviation right now, the business itself has yet to generate any kind of serious financial performance for investors to base their buying and selling decisions on.
Joby’s Valuation
One of Joby’s largest problems is the fact that its valuation relies on uncertain future sales and earnings that could be years down the line if they materialize at all. With a sub-$5 billion market cap and almost insignificant revenues, JOBY is currently priced at over 31,000 times its sales.
The stock’s price-to-book ratio is far more reasonable, but at 5.3 times book value investors don’t exactly appear to be getting any bargains. Even with all of the progress the company has been able to deliver over the past year, the stock is only up about 14% on a trailing 12-month basis.
JOBY has also attracted a decent level of institutional investment interest. Right now, a little over 75% of the company is owned by institutional investors, and the rate of buying has strongly outpaced selling in the last six months.
While this indicates that institutional investors are still relatively sanguine about Joby’s prospects, it may not fully counteract the concern that the stock is overvalued at today’s prices.
Is JOBY Stock a Buy, Sell or Hold?
Analysts are still basically optimistic about JOBY. The average target price for the stock is $8.06, which would see JOBY gain over 40% from the most recent price.
This hasn’t, however, prevented analysts from splitting on their ratings of the stock. Right now, JOBY has two buy ratings, two hold ratings and one sell rating.
The fundamental risk of investing in Joby Aviation right now is that the stock’s value is almost entirely speculative. While the company has attracted investment and partnerships from some very large, well-recognized names, the business itself is still at such an early stage that it’s extremely difficult to say what its financials could look like or how long it will take Joby to begin making meaningful revenue.
Joby has also consistently diluted its shares, a practice that could punish existing shareholders over time as they wait for the company to begin performing.
The Board has expanded its share base by 8% or more on a year-over-year basis in six of the last eight quarters.
The longer Joby Aviation extends this practice as it progresses toward commercializing its aircraft, the more shareholders who already own the stock will see their ownership shares watered down.
What’s Stopping Joby Lifting Off?
The regulatory hurdles the company has had to clear have prevented it from ever actually offering a passenger flight. Although the company has conducted a vast number of test flights, the initial commercial passenger flights aren’t expected to occur until late this year or early next year.
A final point against Joby is the fact that it will likely take quite a lot of time for the company to realize its potential even once it has full regulatory approval for commercial flights. Joby envisions a network of hubs from which its aircraft can take off and taxi passengers to destinations.
Even with the help of its airline partners, this kind of network is very unlikely to spring up quickly. Management will have to build its infrastructure out over several years, potentially further delaying the revenues and eventual earnings that investors will need to see to justify the price they pay for the stock today.
Until it can start generating appreciable revenue from its technology, JOBY is likely only worth holding for very risk-tolerant investors hoping that electric air taxis take off. For most investors, however, Joby Aviation may simply be too risky and too speculative to be worth investing in at the moment. As such, JOBY is likely a stock to sell at the moment.
If the company can successfully launch its air taxi service and begin answering some of the many questions about its timeline for growth, however, its network of partnerships with large companies could make it worth taking another look at in the future.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.
