There is a future in flying cars – of some sort. Growth investors should be careful.
Morgan Stanley is bullish on electric vertical takeoff and landing, or eVTOL, planes. These are smaller, helicopter-like vehicles that many start-ups want to use in ride-hailing applications. It’s a bit like an Uber ride in the air.
Last Thursday, Kristine Liwag launched eVTOL maker’s coverage
(JOBY) with a buy recommendation. The “sky’s the limit,” she wrote. Liwag sees upside potential of $60 per share. But there are risks with any new disruptive technology, so on balance she takes a more conservative approach. Her price target is $16 a share.
Joby stock rose 9.3% on Thursday, closing at $10.57 per share. The
Dow Jones Industrial Average
won 1.2% and 1.5% respectively that day. According to Bloomberg, it is Joby’s first and only rating. That’s one reason for the big response. And it’s bullish. Joby just completed its merger with a special acquisition company, or SPAC, turning it into a publicly traded company in August. Wall Street typically takes a few weeks to boost coverage. A stock the size of Joby — its market cap is over $7 billion — will typically have eight to 10 analysts backing it.
A lack of coverage, plus disruptive technology, usually means stock market volatility. Joby shares were about $10 before the SPAC merger closed. It shot up to about $13 right after that and slipped back to less than $10 before the new rating. EVTOL – as an industry or an investment – is a bit like a commercial spaceflight. Helicopters have always been around, as have rockets. But falling costs make new applications possible. (Reusable rockets have led to SpaceX being valued at $74 billion in private markets.)
Liwag sees sales grow from zero today to about $390 million in 2026 and $3.4 billion in 2030. From now until 2026, Joby must receive approval from the Federal Aviation Administration for his new aircraft. That should be around 2022. By 2026, the company expects to be able to operate its aircraft 12 hours a day, seven hours of which are turnover, with an average flight length of 24 miles.
The average flight should cost people about $50, and Joby, about $20 per ticket to run. All of these assumptions are just the best guesses at this point.
Joby is not the only player.
Blade Air Mobility
(LILM) are three other stocks in the eVTOL business. Blade shares rose 3.2% in Thursday’s trading. Lilium fell 1.4%. Archer added about 6%.
Blade has four analysts covering its stock, according to the company. All four rate the stock as a buy. Archer has one analyst, according to Bloomberg. Benchmark analyst Josh Sullivan rates the Buy stock, with a price target of $15. Lilium has one analyst covering its stock, per Bloomberg. Piper Sandler analyst Alex Potter reviews the shares Buy. His price target is $17.
So the industry is seven to seven with analyst buy ratings. The Street sees gains for eVTOL stock, all of which are trading at $9 to $12 a share. Currently, the sector is valued at about $15 billion, or as much as the aerospace and industrial conglomerate
That is a lot for companies that do not yet have a significant turnover. The cheapest stock is Blade, with a market cap of less than $1 billion. It wants to operate the network, not build the plane. Investors may want to remember that
(UBER) is worth more than
(GM). Investors like asset-light network business models.
However, who will win the eVTOL wars is a guess. Al Root
Write to Al Root at firstname.lastname@example.org