Joby Aviation Stock: The Case for Upside Just Got Stronger

Key Points

• The June CPI report means it's time to rotate into small-caps, providing a secular tailwind to support JOBY's bull-case.
• JOBY is advancing eVTOL technology and will commence operations next year. 
• Analysts are optimistic and see the stock advancing 30% to 60% at the high end of the target range, which is a low estimate for this proven technology. 

There is a bull case for Joby Aviation NYSE: JOBY that has nothing to do with the June CPI report, but that report made it stronger. The case is stronger because the CPI was cooler than expected, affirming the outlook for interest rate cuts. The outlook for interest rate cuts means an economic pivot will begin later this year, as early as September, which means better times lie ahead. 

This means it is time for the market to rotate out of large-caps and mega-tech in favor of riskier assets, assets known to perform well in a falling-rate environment. That means small caps and the Russell 2000, of which Joby is a part. The takeaway is that Joby has a bull case for its stock price because of its business outlook, and now a secular tailwind begins to blow. 

Joby Aviation Leads the Charge in eVTOL 

Joby Aviation is an emerging technology company specializing in electric vertical take-off and landing (eVTOL) and air-taxi services. Its proven technology has undergone thousands of hours of test flights and is on track for FAA and other approvals in early 2025. Commercial operations are expected to begin soon after, including air taxi service in key U.S. cities such as New York and Los Angeles and services in Dubai and India. Joby also has contracts with the government that are expected to lead to sustained business. As it is, the government contracts provide a small revenue stream to help offset its development-related cash burn. 

Three news updates have recently triggered Joby’s stock price. Two involve acquiring Xwing autonomous flight software technology and an in-house software suite that enables end-to-end, easy, scalable air taxi operations. Those developments go hand-in-hand and will facilitate operations moving forward. The addition of Xwing technology is expected to aid eVTOL operations today. 

The third development is a successful test flight of Joby’s hydrogen fuel-cell eVTOL aircraft. The fuel-cell components were fitted to an existing JOBY airframe with minimal modifications, paving the way for expanded services to include regional operations. The fuel cell allowed Joby’s aircraft to fly 523 miles, far further than the electric model, using only 90% of the fuel capacity and leaving only water in its wake. Because the craft was built on an existing airframe, the path for regulatory approval is much easier and far less costly than developing an entirely new vehicle. 

Joby Aviation is Well-Funded and Has Significant Industry Support

Joby Aviation is not advancing its technology alone. It has significant funding from partners, including Toyota Motors NYSE: TM, Delta Airlines NYSE: DAL, and Uber NYSE: UBER, not including contracts with USAF and NASA or deals with foreign governments to introduce their services abroad. Unless there is some unknown development, it is unlikely that JOBY will fail. 

The takeaway from the Q1 report is that cash burn declined, came in below $95 million, and there is still more than $900 million on the books. That is sufficient to sustain operations at the current rate of cash low for more than two years, long enough to see the company commence its commercial operations. Even so, there is some risk of dilution. 

JOBY Stock Price Can Fly Much Higher 

Only two analysts have issued ratings this year, but the news favors investors. The two are from JPMorgan Chase & Company NYSE: JPM and Cantor Fitzgerald, with a consensus of Moderate Buy and a price target of $8. The range of targets is $6 to $10, which implies the stock is fairly valued at current levels with a chance of 30% upside at consensus and 60% at the range’s high end. 

The Q2 results due in early August are the next catalyst for price movement. Analysts expect revenue of $500,000 related to the government contracts and for the losses to narrow. While results are important, the market moving details will center around the certification process, production schedules, and the timing of commercial operations.