Electric vertical take-off and landing aircraft startup Joby Aviation (NYSE:JOBY) has seen its shares soar unexpectedly in the last week. JOBY stock is up nearly 48 percent in the last five days and over 200 percent in the last three months. Why is Joby stock going up so much, and is now the time to buy shares in this young air taxi business?
Joby’s Recent Production Announcement
Joby’s recent pop has mainly been the result of management’s announcement on July 15th that the business would be doubling the production capacity at its manufacturing facility in California.
After the expansion, the site is expected to be able to produce about 24 aircraft each year. It also represents a continuation of Joby’s close relationship with Toyota, which has its own engineers working in collaboration with Joby to optimize manufacturing processes.
Speaking of Toyota, it has invested a huge amount of capital into Joby Aviation. In May, a $250 million investment closed. Toyota’s involvement is crucial to success because it brings both a deep knowledge of manufacturing and deep capital reserves to the partnership.
The bigger production facility is likely to prove deeply positive for JOBY shareholders, as the business will be able to ramp up its manufacturing faster than previously expected.
This, in turn, could provide the company with a faster on-ramp to significant revenue growth. With the air taxi market expected to grow from a current size of just over $6 billion to over $60 billion by 2034, the ability to move rapidly may be crucial for Joby to seize off a large share of a fast-growing market.
Joby’s Other Tailwinds
Although the decision to increase production capacity caused JOBY shares to move rapidly higher, it added to other positive trends that were already bolstering share prices. First and foremost among these was a recent executive order promising greater government support for the eVTOL industry.
Joby, of course, stands to become a prime beneficiary of this policy and will likely be one of the two leaders in the market. The other, Archer Aviation (NYSE:ACHR), has also seen its shares rise significantly in recent weeks.
Joby has also benefited somewhat from the market’s expectation of lower interest rates ahead. Although the Fed is still holding its baseline interest rate steady for the time being, analysts at Goldman Sachs expect three rate cuts in the later months of 2025.
Lower interest rates tend to heavily favor high-growth stocks, especially those like JOBY that are priced on earnings that are still likely quite a long way out.
Has JOBY Risen to the Point of Overvaluation?
While there are obviously some positive trends shaping up in Joby’s business, it’s quite difficult to justify its current share prices from a value investing perspective.
JOBY is currently trading at an astronomical price-to-sales ratio of over 94,000, as well as a price-to-book ratio of 16.4. These metrics and the long runway to earnings or positive cash flows likely make JOBY quite speculative as an investment.
After recent returns, Joby has even significantly overshot the average analyst price target of $8.25. With shares now trading at over 2x that level, the share price would have to fall by more than 50% to reach that price target.
Even the highest standing target price of $13 would see JOBY fall substantially. As such, it appears that the market may have run shares of Joby Aviation up beyond even what many bulls would find reasonable.
Another indicator that JOBY shares may have moved a bit too high can be found in the activity of institutional investors.
Though institutions are still buying more JOBY than they’re selling, the gap has narrowed significantly since late last year and early this year, when institutional investors were snapping up shares at extremely rapid rates.
Though it’s still too early to know how the recent production announcement will affect institutional activity, large investors appear to have taken less interest in the stock as its prices have moved upward in recent months.
Joby’s Risk Factors
In addition to its extremely high valuation, it’s also important to recognize that Joby is far from a sure thing as an investment.
Though eVTOLs are quite promising, there isn’t yet any definite information about how large the market will be, how quickly it will develop and how profitable the businesses that take the lead in it can become. All of these uncertainties introduce a rather high degree of speculative risk into JOBY, as well as competitors like Archer Aviation that are working along similar lines.
The rollout of eVTOLs, including Joby’s, could also be delayed by regulatory hurdles or safety concerns. As such, even if the market proves to be large and fast-growing, it’s also quite difficult to establish a timeline for its development. This presents significant valuation challenges, as investors can have little to no certainty when it comes to how far into the future to discount the eventual earnings of companies like Joby.
Is Joby Aviation a Buy?
Though the announcement of expanded production is undoubtedly positive for Joby as a business, the stock itself is likely too expensive to buy at the moment.
Sudden upward volatility of the kind JOBY has experienced can easily be followed by downward trends that are every bit as sudden. Given the extremely high valuation multiples that JOBY is trading at right now, investors who buy today seem to be taking a significant risk of overpaying.
On a longer-term level, Joby may be a good business to watch as the eVTOL market develops. There’s little doubt that Joby Aviation is in a good position to take an early lead, but there are still many unanswered questions when it comes to how the air taxi market will shape up.
Until some of these questions can be answered, JOBY and stocks like it will likely stay in the domain of extremely risk-tolerant investors who are comfortable with speculative technology investments.
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.