Shares of Joby Aviation (NYSE: JOBY) soared as much as 26.8% this week, according to data from S&P Global Market Intelligence. The air taxi start-up is currently up 17.6% this week as of 3:47 p.m. ET on Friday, May 30. This increase is due to an announced investment from Toyota Motor into the company for a combined manufacturing partnership. The stock shot up on the announcement but has since given back some of its gains.
Here’s more about why Joby Aviation stock was soaring this week.
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New investment from Toyota
On May 27, Joby Aviation announced a new investment of $250 million from Toyota Motor, which was part of a previously announced $500 million commitment from the automotive manufacturing giant. Joby Aviation is building an electric air taxi, and this money — along with Toyota’s expertise — will help the company move through certification and try to get its manufacturing to scale.
Joby Aviation does not have an operating business yet. It is trying to disrupt the transportation market with its vertical takeoff vehicles, which are similar to helicopters but much quieter. The vehicles are not approved for flights yet and are currently under the review process by the Federal Aviation Authority (FAA). Since this is a disruptive new aircraft, product approval will take a long time to make sure all safety standards are being met.
Last quarter, the company ended with $813 million in cash and equivalents plus the $500 million commitment from Toyota. Now, it has $250 million coming to its balance sheet to help it keep investing for product development and certification. It is going to need the money. Joby Aviation burned $489 million in free cash flow over the last 12 months, giving it only a few years left of cash burn before it will run out of money.
Image source: Getty Images.
Is Joby Aviation stock a buy?
After the recent surge, Joby Aviation stock has a market cap of $6.57 billion. It generates zero revenue. While the new air taxi product is potentially disruptive, investors should be cautious about investing in a product that has not even been approved to operate.
Even if Joby Aviation can start selling vehicles and generating hundreds of millions or even a billion dollars in revenue, that does not make the stock cheap compared to its current market cap of over $6 billion. Share dilution is going to impact returns as well, with shares outstanding up 10% in the last year.
For all these reasons, Joby Aviation stock is one investors can easily discard at current price levels.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
