Daily Stock Watch: Can Vertical Aerospace Take Off?

By Duncan Ferris

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This electric aerospace outfit has soared by almost 20% on Friday morning, but does Vertical Aerospace (NYSE: EVTL) have the makings of a good investment?

Vertical Aerospace (NYSE: EVTL) saw its share price leap on Friday morning after it announced it had confirmed delivery slots and received the commitment of associated pre-delivery payments with American Airlines (NASDAQ: AAL).

The airline giant has reserved delivery slots for the first 50 VX4 aircraft of its initial conditional pre-order of up to 250 aircraft, with an option for an additional 100, announced in June 2021.

Vertical CEO and founder, Stephen Fitzpatrick, said:

“We are delighted to have reached this major milestone with American Airlines on our eVTOL partnership. Together, we are making zero-emissions flight a reality for passengers travelling all over the world. We look forward to continuing our work with American and seeing the first red, white and blue VX4 come off the production line.”

What is Vertical Aerospace?

Vertical Aerospace engages in designing, manufacturing, and selling electric aircraft. It offers VX4, an electric vertical take-off and landing vehicle. The company was founded in 2016 and is headquartered in Bristol, the United Kingdom.

The company says it aims to provide faster, quieter, greener and smarter ways for people to travel around cities and regions. The VX4 is projected to have speeds up to 200mph, a range of over 100 miles, near silent, when in flight and zero operating emissions.

As such, the plane is seen as a means of taking passengers on short final-leg journeys after longer periods of air travel. The company says it can provide these journeys at a lower cost and a faster pace than taxi cabs or hired helicopters.

The business sees the decarbonization of transport as critical for the future of our planet and thus has the mission of transforming mobility.

Recent news from the company includes a further 50 conditional pre-orders of the VX4 from FLYINGGROUP, the establishment of Molicel as its battery partner, and agreeing to concurrent certification with the European Union’s Aviation Safety Agency (EASA) and the UK’s Civil Aviation Authority (CAA).

How Does Vertical Aerospace Make Money?

The company’s business plan is to make money through aircraft sales and aircraft services. Aircraft services, which is seen as a source of recurring revenue for Vertical, is expected to contribute around 18% of total revenue between 2024 and 2028. 

Meanwhile, the company says that aircraft sales are anticipated to deliver break-even with only 86 sales a year.

EVTL Stock Financials

The company has a price-to-book ratio of 8.09, which is about dead on the industry average of 8.78, according to CSIMarket. Meanwhile, the company’s price-to-sales ratio is over 2,000, though this is due to the fact the company remains focused on development and has yet to record major revenues.

It’s also worth noting that, since listing on the NYSE in December 2021, the stock price has been on a steady downward trajectory. In that time, the EVTL share price has fallen by more than 70%.

EVTL Growth Potential

The company has the backing of a slew of companies who carry a great deal of firepower. Investors include Microsoft, Rolls-Royce and Honeywell. With these big-hitters behind it, the company is targeting production growth from 50 VA-X4 units in 2024 to 2,000 in 2028.

Vertical sees revenue climbing on a similar trajectory, with its investor presentation showing plans for revenue to climb from an estimated $192m in 2024 to $7.2bn in 2028. 

This is because the business sees its total addressable market as constituting portions of the ride-hailing and taxi ($302bn), commercial airline ($538bn), helicopter ($53bn) and private jet ($23bn) markets. 

However, things are not this simple in practice, as the service provided by Vertical covers only short journeys.

EVTL Investment Risks

A huge amount of Vertical’s potential rests on getting enough customers on board with this new method of travel. The company boasts that its services are quicker and cheaper than competitors, but they also have certain shortcomings.

For example, a taxi or ride-hailing service might be a little slower than Vertical, but it can take you directly to destinations besides airports. How many travelers have an airport as their final destination? The company wants to build city-based ‘Vertiports,’ which would make this less of an issue, but this seems like a goal that lies very far in the future.

It is issues like this that might see the company fail to attract sufficient demand. 

Additionally, the business remains in the development stage. This means it is only bringing in small amounts of revenue, such as the $132,000 it achieved in its most recently reported quarter.

However, costs remain enormous, with research and development costs coming in at $24.3m and administrative costs amounting to $264.3m. As such, the business booked a $277.2m operating loss for that period. 

The company reported that it had cash of $212.7m, and it certainly has some big backers, but no business can afford to keep hemorrhaging money for too long. If the business encounters too many delays and falls behind on its timeline, then it could spell disaster.

Is EVTL A Good Investment?

This stock has some big backers and has secured itself a number of impressive deals with big names in the aviation industry. However, its exciting business plan is reliant on the success of an idea that seems largely untested in terms of realistic demand, while the huge costs involved with EVTL’s ongoing development journey further muddy the water.

Jumping on board with a stock like this at an early stage could net you significant returns if it goes on to success, but there is no guarantee that Vertical’s electric planes will take off with consumers. As such, prospective investors should consider their personal appetite for risk before deciding to back EVTL.  

Want to read about more trending stocks? Check out our analysis of Delta Air Lines and Ericsson!

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Topics:
Aerospace
Airport Services
Airlines
Trending Stocks
Industries:
Industrials

Author: Duncan Ferris

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Duncan Ferris does not hold any position in the stock(s) and/or financial instrument(s) mentioned in the above article.

Duncan Ferris has not been paid to produce this piece by the company or companies mentioned above.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.

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