Key Points
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Joby Aviation hopes to be able to transport passengers on its aircraft by next year.
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The aircraft maker has recently completed multiple piloted flights in Dubai.
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The stock’s valuation looks pricey, with the market cap now north of $14 billion.
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One of the most exciting growth opportunities to invest in today is arguably in electric vertical take-off and landing aircraft (eVTOL). Not only are they environmentally friendly, they also have the potential to ease congestion in major cities while also enticing customers with a novel way to travel.
A big company in that space today is Joby Aviation (NYSE: JOBY), which has experienced a surge in value this year. Heading into trading this week, its shares are up over 110%, with its valuation rising higher than $14 billion. With such strong gains already and a seemingly inflated valuation, is it too late to invest in this promising stock, or could Joby still be a solid addition to your portfolio today?
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Joby is gearing up for growth
Joby Aviation is in the final stages of obtaining the necessary certification to fly passengers on its aircraft, potentially being able to do so as early as next year. That has investors excited about its growth prospects and for the business to start generating some significant revenue.
Currently, the company generates minimal revenue, while its losses are well into six figures. But the hope is that in the long run, with a formidable air taxi business, Joby may have profitable operations.
In late June, Joby announced the delivery of its aircraft to the United Arab Emirates, where it also completed piloted vertical-takeoff-and-landing wingborne flights. It marks a key milestone for the business, signifying that it is getting close to transporting passengers in the region.
The company is also expanding its production capacity. Last month, Joby announced plans to double its production capacity at its site in Marina, California. With 435,500 square feet, the facility will be able to manufacture up to 24 aircraft annually.
Risks that investors should be wary of with Joby
It’s an exciting time for Joby’s business, because there is seemingly so much potential on the horizon. It has captivated investors, making this one of the hottest growth stocks to own of late. But there are also many questions that investors should consider when thinking about investing in the business:
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How quickly can the business grow its revenue?
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What will its gross margins be on its aircraft?
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Can Joby be profitable, and if so, how many years might that take?
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Will demand be as strong as expected, given how congested air travel already is these days?
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Is a $14 billion valuation justifiable for a business with so much to prove?
These are just some of the questions I have around not only Joby, but also other eVTOL stocks.
There’s a lot of hype and excitement around these new technologies, but investors who buy today are also getting in very early and taking on considerable risks in doing so. It will take time (perhaps years) to get a clear answer on some of these questions.
The danger with investing in a stock that has not only doubled in value quickly but that is also at a steep valuation is that expectations are incredibly high, and if Joby falls short of them, its value could quickly come down.
Should you buy Joby Aviation stock?
Looking at the stock and its soaring value, it may indeed look like it’s too late to invest in Joby. But I believe it’s actually too early to do so. There are so many questions relating to not only the company, but to just how strong the overall industry’s growth prospects will turn out to be.
The stock’s valuation relies heavily on speculation rather than on fundamentals, and that makes investing in the business a risky proposition, which is why it may not be a suitable option for most investors.
Right now, the safest option would be to take a wait-and-see approach with Joby. If it’s truly such a spectacular growth opportunity, you can still achieve great returns from the stock if you wait. By doing so, and waiting to see what its financials look like as it ramps up production and begins its operations, you can get a better idea of how solid a business it may be.
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David Jagielski 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.
