Is Joby Aviation Stock a Buy Below $16?

The Rise of Electric Air Taxis

Joby Aviation is at the forefront of a new era in urban transportation. The company is developing innovative electric air taxis, which could revolutionize how people move within cities. These vehicles, known as electric vertical takeoff and landing (eVTOL) aircraft, are designed to offer a faster alternative to traditional ground transportation.

Despite its ambitious vision, Joby's eVTOLs have not yet received certification from the Federal Aviation Administration (FAA). This lack of regulatory approval remains a significant hurdle for the company as it works to bring its technology to market. However, the potential for disruption is clear, and many investors are watching closely.

A High Market Cap with No Revenue

Joby has captured the attention of investors, with its stock price rising 152% over the last 12 months. This surge has pushed its market cap to $14 billion, even though the company currently generates no revenue. For investors considering whether to invest in Joby, the question remains: Is this a promising growth story or an overhyped opportunity?

The company’s business model relies on the successful commercialization of its eVTOL network. If it can achieve this, it could provide a fast, efficient way for passengers to travel between key locations, such as city centers and airports. For example, a planned route from downtown Manhattan to John F. Kennedy International Airport could save travelers an hour or more in transit time.

Preparing for Commercialization

To prepare for the launch of its eVTOL services, Joby is investing heavily in manufacturing capacity. Its California facility is currently producing 24 aircraft per year, with a focus on testing. Meanwhile, its Ohio site aims to increase production to 500 aircraft annually, making it the primary assembly plant for its eVTOL vehicle.

However, the financial challenges are significant. Joby is burning through $500 million in free cash flow each year, and this expense has only increased since its initial public offering. To support its operations, the company has formed an investment partnership with Toyota and raised over $500 million through a common stock offering. As of the end of the last quarter, Joby had just under $1 billion in cash on its balance sheet, giving it a few years of runway before additional funding may be required.

Evaluating the Investment Potential

While the concept of electric air taxis is exciting, there are several reasons to approach Joby’s stock with caution. First, the company is losing money, which means it will need to continue raising capital and potentially diluting existing shareholders. Second, manufacturing aircraft is inherently expensive, and profit margins in this industry are typically low.

Even if Joby manages to produce 500 aircraft annually and sells them at an average price of $5 million, that would generate $2.5 billion in revenue. At a 10% profit margin, this would result in $250 million in earnings. However, with a current market cap of $14 billion, this would give Joby a future price-to-earnings ratio of 56—before accounting for further shareholder dilution.

This valuation makes Joby Aviation stock seem overpriced, even for those who believe in its long-term potential. For most investors, it may be wise to avoid adding this stock to their portfolios at this time.

Consider Other Opportunities

Before investing in Joby, it’s worth exploring other options. The Motley Fool Stock Advisor team has identified what they believe are the 10 best stocks for investors to buy now. While Joby was not among them, the list includes companies that have delivered significant returns in the past.

For example, Netflix made the list on December 17, 2004, and an investment of $1,000 at that time would have grown to over $590,000. Similarly, Nvidia made the list on April 15, 2005, and an investment of $1,000 would have grown to over $1.1 million. The average return for the Stock Advisor portfolio has been 1,033%, far outperforming the S&P 500.

Investors looking for opportunities should consider joining Stock Advisor to access the latest top 10 list.