Down 20% From Its 52-Week High, Is Now a Great Time to Buy Joby Aviation Stock?

Key Points

• The market for electric vertical take-off and landing aircraft is in its early innings.

• But analysts expect a ton of growth, and Joby has lined up deals with top companies.

• Joby Aviation hopes to begin commercial air taxi operations as early as next year.

• 10 stocks we like better than Joby Aviation ›

Did you know that one of the hottest growth opportunities in the world right now is investing in electric vertical take-off and landing (eVTOL) aircraft, which can be used as air taxis? According to analysts at Grand View Research, the global market was worth roughly $1 billion in 2023, and it will grow to nearly $29 billion by the end of the decade. That averages out to a compound annual growth rate of approximately 55%.

One of the leading companies in the eVTOL space right now is Joby Aviation (NYSE: JOBY). It's in the early innings of development and generates minimal revenue. It doesn't have the necessary certification to fly its aircraft just yet, but it should soon, perhaps as early as next year. There's huge potential for the business as it's establishing itself as a market leader in a rapidly growing market.

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Recently, Joby's stock has been declining, and it's now down close to 20% from its 52-week high of $20.95. The stock has still more than doubled this year, and given the hype in the eVTOL market, it may not go down a whole lot lower anytime soon. Could now be the ideal time to invest in Joby?

Image source: Getty Images.

Has Joby's valuation gotten too large, too fast?

There is a massive opportunity in the eVTOL market for investors, but one thing to consider is valuation. While the global market for eVTOLs may be worth close to $29 billion by the end of the decade, Joby's market cap as of Monday's close was nearly $15 billion. In relation to the overall size of the industry, Joby's valuation looks high, even with its stock price coming down in recent days.

This highlights one of the challenges with investing in such an exciting stock -- valuations can get out of hand, quickly. At a market cap of $15 billion, investors are effectively assuming that Joby will obtain certification and will be able to begin delivering some good numbers, potentially as early as next year.

This sets expectations high, and it leaves little to no margin of safety should the company stumble. And while it's arguably the leader right now, it's not without competition in the space. Archer Aviation is also getting close to obtaining certification for its eVTOL aircraft, the Midnight.

Joby's valuation is undoubtedly high, but the company has been giving growth investors plenty of reasons to be bullish about its future.

A huge opportunity lies ahead

Joby has been locking up agreements with many big organizations and businesses, including Toyota, Delta Air Lines, and Virgin Atlantic. Companies are eager to secure partnerships to ensure they can be in the pole position to take advantage of what might be the most exciting new travel trend in the world -- getting around busy cities via air taxis. Joby has also partnered with L3Harris recently, to build hybrid VTOL aircraft for defense purposes.

The first big test is in the United Arab Emirates, where Joby has begun testing its aircraft. It plans to commence air taxi operations there by next year. There's no shortage of demand for Joby's eVTOLs. The key at this point will be obtaining certification, and ramping up production. If it's successful, then it wouldn't be surprising to see this hot stock soar even higher.

Should you invest in Joby's stock right now?

Joby's business is an exciting one to invest in. But it's important to not let emotions take over. Valuation still matters and shouldn't be ignored. My concern is that a best-case scenario is already priced in with Joby's hefty valuation. While it's down from its highs, it's by no means a cheap buy when you consider the size of the overall market. Plus, there are still questions about whether the business can be profitable in the long run.

Given how close Joby is to launching its operations and with certification so close, you may want to consider holding off until all that happens, just to minimize some of your risk. That could mean giving up some gains in the process. But with so much growth potential in the industry still to come, if Joby proves it's the real deal, there will be plenty more gains to come in the long run. For now, I think waiting on the sidelines may be the best option for investors.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends L3Harris Technologies. The Motley Fool recommends Delta Air Lines. The Motley Fool has a disclosure policy.