Shares of Joby Aviation (JOBY +1.29%) have been flying this year, and the share price is up more than 165% in just the past six months. As a leading company in the electric vertical takeoff and landing (eVTOL) industry, investors are optimistic about its long-term growth prospects, with the company planning to begin commercial air taxi operations next year.
But is the market getting ahead of itself, and has Joby's stock risen too quickly, too soon? Let's take a closer look at whether it's a good buy right now, or if you're better off waiting until its value comes down a bit more.
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Has Joby's valuation skyrocketed too high?
The eVTOL market is in its early stages, and with Joby not yet beginning its commercial operations, investors are paying for future growth right now. Its market cap is north of $15 billion, which means it already falls into the category of being a large-cap stock. Normally, you'd expect large-cap stocks to be established and fairly safe businesses to invest in.
And to put its valuation into perspective in another way, consider that analysts at MarketsandMarkets project the entire eVTOL aircraft market to be worth just under $5 billion by 2030. Joby already exceeds that today.
It could be years before eVTOLs become common in the skies. And that creates numerous question marks about not only Joby's valuation but also the eVTOL market as a whole. The big test will come if and when the company starts scaling up production of its aircraft, to see what its financials look like after producing hundreds of aircraft per year, as Joby plans to eventually do. Investors who are buying shares of Joby at its current valuation are taking a big leap of faith in the business, that it's going to be not only a dominant player in the industry in the future, but also a profitable one.
Any way you look at the stock right now, there's plenty of risk involved with it. And the higher Joby's valuation goes, the more room there is for the stock to decline if there's any sign of adversity or hints that the outlook may not be as rosy as growth investors expect.
The ultimate long-term play, or gamble?
There's plenty of potential and uncertainty when it comes to the eVTOL market. In the very long term, Goldman Sachs previously predicted that the global eVTOL market might be worth as much as $9 trillion -- but that's by 2050. Under such an assumption, a case can easily be made that Joby and any eVTOL stock that's still around by then could be a cheap buy today.
But things can, of course, change drastically when looking at decades. The eVTOL market may look considerably different, other technologies may take its place, and other stocks might be the big benefactors of them. While investing is long-term in nature, there's a reason why Warren Buffett likes to invest in companies that have established and strong businesses, as there's a lot more predictability in their growth over the years. With the eVTOL market, it's anyone's guess what might happen decades from now or who the major players might be.
NYSE: JOBY
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Is Joby's stock worth buying today?
Investing in Joby's stock is going to come with risk, regardless of what price it's trading at. There are multiple factors to consider that are impossible to get answers to right now, including how quickly it will be able to scale, how much revenue it might bring in, and when, and what its earnings will look like.
Although there may be less room for it to fall if it's valued at $5 billion versus $15 billion, you can still stand to lose a lot of money by investing in a business at such an early stage in its development, especially in an industry that's also just getting started. Joby is an intriguing stock to watch, but it's hard to gauge what its value should be. If it's a winner in the eVTOL market and the industry takes off, then it could be a steal even at its current price. But if the market turns out to be a dud, then even a $1 billion valuation might prove to be too rich for Joby.
Joby is a long-term investment that comes with significant risk. If you're comfortable with the risk and uncertainty and are willing to hold on to it for years, then it might be worth making a small investment in the eVTOL stock. But unless you can afford to leave it in your portfolio and forget about it, you might be better off taking a wait-and-see approach with the stock.
