Joby Downgraded: Is This The Buying Opportunity We’ve Wanted?

Key Points

• Joby’s planes have been cleared for production, with U.S. Air Force set to be their first customer. 
• They have raised a ton of cash to ensure they have the runway to get to market. 
• Any further selling is only increasing the longer-term opportunity for investors.

Our regular readers will be well familiar with Joby Aviation Inc NYSE: JOBY, whose massive potential we first wrote about last November. We flagged fresh upside potential in late February and again at the start of June, and so far, it hasn’t let us down. Shares of the electric aircraft startup have rallied as much as 275% since the start of the year, but so far in July, their wings have been clipped.

The stock is down about 30% in the past three weeks, but the good news is there’s nothing really fundamental behind the drop. In fact, we’re leaning towards this being a buying opportunity for any investors who’ve been chasing the bid. The company has a lot more tailwinds than headwinds right now, so let’s jump in. 

For starters, key updates in recent weeks have shown the company to be a lot closer to generating revenue than many were giving them credit for. Joby is still a very early-stage aviation tech startup and one whose revenue, not to say profits, are, for the most part, all theoretical for now.

However, despite this and in a sign of just how serious their plans are being taken, both Toyota and the U.S. Air Force have already signed contracts with them. The latter partnership, in particular, would have convinced many of the skeptics, with its $131 million contract securing Joby’s path to commercialization and real-life planes. In fact, nine are scheduled to be delivered in the first half of next year. 

Strong Runway

Beyond these high-profile partnerships, Joby’s leadership has been strategic in making sure they have enough cash to get all the way down the runway. They took advantage of the stock’s rally to raise an additional $180 million in May and made a point of highlighting the impact this is going to have on their R&D capabilities. Further funding of $100m was announced earlier this month. 

In addition, there’s been from the regulation side of things, with the Federal Aviation Administration (FAA) issuing them a certificate for their first production prototype last month. This news alone sent the stock up nearly 100% and helped arrest a run of red days as investors had started to take profits after the recent high. 

It feels like we’re going through that again right now, and it may be no bad thing in the long run. Whenever an early-stage stock commands the kind of hype that Joby does, there’s always going to be volatility in its share price.

This current dip has been accelerated by the team at JP Morgan downgrading their rating on the stock. They moved it from Neutral to Underweight earlier this week over concerns about its current valuation relative to its peers. Interestingly they remained bullish on the company’s prospects to deliver and went so far as to say the upside has been significantly de-risked, but the recent rally has made them nervous. 

Taking Advantage

For those of us who find ourselves buying into the company’s mission and vision, this means there are always buying opportunities, even if we miss getting in on the ground floor. Joby’s RSI, an indication of how overbought or oversold a stock is, was above 80 after the FAA update, indicating the former.

It’s only natural that short of further groundbreaking updates, there will be a drop in volume on the bid, leading to investors with a shorter-term view selling to lock in profits. 

Investors keen to take advantage of the dip should watch for the current bout of selling to lose momentum and for shares to consolidate with some sideways action. Joby’s RSI is already back in the 40s, so we could soon see the momentum starting to swing again. One thing’s for sure, Joby isn’t going anywhere but up, which counts for both their prototypes and stock.