What happened
Shares of Vertical Aerospace (EVTL +4.26%) took flight on Thursday, gaining up to 38% on strong volume. There was no news to explain the jump, but the stock appeared to get caught in an updraft on a strong market day in which investors poured money back into riskier investments.
Image source: Getty Images.
So what
Vertical Aerospace is a British company developing an electronic aircraft capable of vertical takeoffs and landings. The company has big backers, boasting a total of 1,350 conditional preorders from the likes of American Airlines Group (AAL 0.08%) and others, and went public back in December via a merger with special purpose acquisition company (SPAC) Broadstone Acquisition Corp.
This is an exciting opportunity, but also a very crowded field. Vertical is one of four early-stage electric vertical takeoff and landing (eVTOL) companies to go public in the last year, joining Joby Aviation (JOBY 3.80%), Lilium (LILM +0.00%), and Archer Aviation (ACHR 1.84%).
Vertical Aerospace shares in their first few weeks of trading have been volatile, jumping as much as 20% after the merger with Broadstone was finalized but falling more than 40% in the days that followed. But they have gained altitude in recent days despite no apparent news.
Through much of January, the broader markets have soured on pre-revenue companies and other riskier assets, a group which would include Vertical Aerospace. But the markets were up on Thursday, and investors rushed into Vertical Aerospace as focus shifted to the potential return on investment instead of the risk involved. Through 1:45 p.m. EST, nearly 7.5 million Vertical Aerospace shares had traded hands, well above the 461,000 average daily volume for the company. https://finance.yahoo.com/quote/EVTL?p=EVTL&.tsrc=fin-srch
Now what
There is real promise in these electric helicopter/airplane hybrids but also a lot of hype. Vertical Aerospace is valued by the market at nearly $2 billion despite not yet having a product in service and facing a lot of competition.
Earlier in the week, Barclays analyst David Zazula initiated coverage on Vertical Aerospace with an underweight rating and a $7 price target, warning that the company has the smallest balance sheet and the most aggressive projections among all of the eVTOL companies. He sees material long-term upside to the concept but cautions there are a lot of risks as well.
His warning should be taken seriously. For those interested in the technology and drawn to Vertical Aerospace's ambitious plan, there is enough substance here to make this stock a small piece of a well-diversified portfolio. But investors need to be aware this is unlikely to be a smooth flight, and there is a lot of potential downside from here if things do not go as planned.
