Has Joby Aviation's Stock Already Peaked?

Key Points

• Joby Aviation is a leader in the electric vertical take-off and landing market.

• It recently completed its first piloted air taxi flight between public airports.

• The company plans to begin commercial air taxi operations in 2026.

• 10 stocks we like better than Joby Aviation ›

Investing in zero-emission flying vehicles sounds like a fantastic growth opportunity for investors. And one of the hottest trends right now involves investing in companies that are in the electric vertical take-off and landing (eVTOL) aircraft market. The aircraft can act as air taxis, transporting people efficiently while also being greener and less noisy options than helicopters.

A leading company in that space is Joby Aviation (NYSE: JOBY). The company has been making progress and hopes to commence commercial operations by next year. In light of those expectations, the stock's valuation has climbed by more than 160% in just the past 12 months.

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But with the company generating limited revenue and incurring massive losses, and a business model that still needs to prove it can be profitable, there's ample risk with the stock. In just the past month, shares of Joby are down by more than 20%. Is this a sign that the stock may have peaked, or is this just a slight bump in the road for what may still prove to be a promising long-term growth investment?

Image source: Getty Images.

Speculation, not fundamentals, is fueling Joby's stock

Joby's stock has struggled recently, but overall, it's still up more than 60% this year (as of the end of last week). For a company that still hasn't begun its commercial operations, investors are clearly jumping the gun on this one and expecting big things from Joby in the future.

But there is no certainty as to how all that plays out. I'm skeptical about eVTOL stocks as a whole, given the numerous question marks about not only infrastructure but also how practical the aircraft are. Joby's aircraft can transport up to four passengers, which may not really alleviate much traffic in busy urban cities unless you have hundreds of these aircraft in the skies, which may not be ideal for air traffic.

This is also a capital-intensive business, and until Joby starts to scale and generate revenue, investors won't have a clear idea as to how likely it will be for the business to turn a profit. The aircraft may look sleek and futuristic, but that doesn't mean it may be all that practical or result in profitability for Joby in the long run.

Are investors having second thoughts?

In August, Joby completed its first piloted air taxi flight between public airports, marking a milestone for its operations. The flight was in California, between Marina and Monterey, and the company regarded it as a "major step" in its progress toward commercialization.

However, the stock didn't rise on that news, and instead, it has fallen since then. Perhaps investors were expecting more from Joby, or they simply wanted to cash out profits from the stock's strong rally this year. But according to analysts, there may be much more room for the eVTOL stock to fall. The consensus analyst price target is just $10.50, which implies a downside risk of more than 20% from where the stock trades today.

Price targets are not a guarantee of where a stock might end up, but they can give investors a good gauge of how underpriced or overpriced a stock may be. And with Joby still being well above the consensus average, it highlights just how speculative a buy it has been this year. If investors are indeed thinking about the valuation more closely, there could be more of a correction to come for Joby's stock in the near future.

Joby's stock may already have too much growth priced in

If you're buying Joby's stock today, you're paying a hefty premium for a business that's so early on in its growth. At around $11 billion in market cap, you would need to have fairly strong confidence that not only is the eVTOL market going to be big in the future, but that Joby will also be a key player in it for the stock to appear to be a good buy today.

I'm not confident in either one of those things being true, which is why I think a wait-and-see approach is the safest one to take with Joby. I believe the stock may have reached a peak, at least in the short run. How it does in the long term, however, is still too hard to tell. And unless you have an extremely high risk tolerance, you may be better off waiting on the sidelines than investing in Joby, even with the stock's recent decline in value.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.