Electronic vertical take-off and landing (E-VTOL) aircraft have been in the news recently, after Joby Aviation (JOBY) announced that they are building a production facility in Dayton, Ohio that, according to the company’s founder, JoeBen Bevirt, whose name is presumably the source of the JOBY thing, could someday support two thousand jobs and produce five hundred aircraft per year. That caught my attention, not so much because of the optimistic looking forecast, but because it is a sign that the “flying car” industry — one that has been a staple of science fiction for most of my life — could be becoming a reality. From an investor’s perspective, though, is now the time to invest in this futuristic concept, and if so, is JOBY the best place to be?
The meta story is both obvious and intriguing. The idea of small, electric-powered aircraft that can operate from almost anywhere without the need for runways is a beguiling one. It would make medium-sized journeys, say from a Manhattan office out to one of the New York airports faster and easier, and would be a boon to logistics companies involved in the ever-growing package delivery business. However, good ideas don’t always make for good businesses. The end product or service has to be affordable to enough people to create demand, and the company itself has to be well enough run to build out an infrastructure over years or sometimes decades with little or no revenue coming in.
While the first part of that equation is still up in the air as we have no idea how pricing will pan out, JOBY seems to have covered the second part. They are still pre-revenue, but as of their last report, have around $1.2 billion of the $2 billion raised in 2021 still as cash on hand, debt of only around $26 million, and negative free cash flow of just over $200 million. The drain on cash will obviously increase as they move from an idea to a business and build the plant needed to make that happen, but at least their history to this point indicates reasonable management of cash flow.
On that basis, and because of the overall sexiness of the flying car business, JOBY could easily be one of those stocks that offers big gains in a fairly short time. The only problem is that this may have already happened:
JOBY went public by way of a SPAC deal in 2021 and the price immediately fell below the $10 SPAC share price, hitting a low of $3.15 earlier this year. It stayed depressed for a while, before jumping to a high of $11.98 at the end of June. One could therefore argue that the speculative bets on JOBY have already been made and have failed, as the stock is now below $7. That spike and a partial drop back would normally put me off of a stock, but in this case, I will make an exception, for three reasons.
First and most importantly, this is a very long-term play, and as such the exact entry point is not that significant. If you had bought Tesla (TSLA) in January of 2019 at or near the 23.47 high for that month, you wouldn’t have seen that level again for around ten months. At this point, though, that wouldn’t matter much to you. I am not saying that JOBY will do exactly as TSLA did, but the potential for exponential gains is there.
Second, the retracement of the big move up has stalled out at just over 60%. It has not stopped at exactly the 61.8% Fibonacci level, but close to it, and this, therefore, is a likely stopping point in the drop, or even possibly a pivot point.
The third reason is more short-term in nature, but JOBY does look to be ripe for a bit of a short squeeze. The short ratio, the number of days it would take for the shorts to cover their positions at average volume, is around 10, with over 13% of the float currently held short. That is presumably institutional shorting, and JOBY fits the bill for a meme stock of sorts — it’s hard to resist the story of a plucky, futuristic small company taking on the world.
It has to be kept in mind that buying JOBY, wherever you might get involved, is very risky. It is a company that is in the process of placing a massive bet on itself before the customer’s appetite for their product is even known. That can lead to great successes, but it can also lead to spectacular failure, and, at this point, both of those outcomes are possible. However, if you are looking for something in which to invest a small amount of disposable cash that could just maybe add to your wealth in the future, JOBY isn’t a bad idea.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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