Sometimes it’s a good idea to just take profits after a recent run-up in any stock, especially if the run-up can’t be justified solely by improving company fundamentals.
That’s the call from
J.P. Morgan
analyst Bill Peterson. Wednesday, he downgraded shares of aerospace start-up
Joby Aviation
(ticker: JOBY) to Sell from Hold. He increased his price target to $6 from $5 a share.
Joby makes electric vertical takeoff and landing, or eVTOL, aircraft. These are quiet, helicopter-like aircraft that are designed to be easier to fly and used in urban environments. They are sometimes called flying cars.
Joby stock was down 6.5% in premarket trading, at $9.42 a share, following the Sell call.
S&P 500
and
Nasdaq Composite
futures were both up slightly.
That only shaves a little off recent gains. Coming into Wednesday trading, shares are up more than 140% over the past three months. Progress made toward the certification of the company’s aircraft is a big reason why. In June, Joby received a special airworthiness certificate from the Federal Aviation Administration that allows it to test its prototype.
It’s good news, which was counterintuitively the catalyst for the downgrade. “Over the past few months, we have observed steady progress by the three eVTOL companies under coverage…in terms of certification and operational milestones,” wrote Peterson.
Despite calling Joby a leader in the field, he added: “However, following this period of outperformance, we see less upside for [Joby] in the near term and we are downgrading [the stock] to Underweight.”
Underweight is the J.P. Morgan equivalent of Sell.
The other two eVTOL makers he covers are
Archer Aviation
(ACHR) and
Lilium
(LILM). Peterson kept his Buy rating on Archer stock and a $6 price target. He has a Hold rating on Lilium stock and no price target.
Archer and Lilium shares are up, too—about 170% and 195% over the past three months, respectively. It’s been an amazing run. Progress is being made, but not all of it appears to be fundamentally driven. “The strong performance in recent weeks has been reflective of a risk-on environment by retail investors in particular, as well as short covering,” added Peterson.
Short sellers borrow stocks they don’t own and sell them, betting the price will decline so they can buy back shares at a cheaper price and return them to owners at a later date. When things start to go well, however, it can cause short sellers to rush in and buy all at once, causing share prices to spike in the process
The average amount of stock sold short relative to shares available for trading is less than 3% for a company in the S&P 500. That ratio for the three eVTOL start-ups is about 8%.
The rest of the Street seems to align with Peterson on relative ratings. Archer is the most popular eVTOL stock. Five out of six, or 83%, rate Archer shares Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target is $8.25.
Three of seven, or 43% of analysts covering Joby stock rate shares Buy. The average analyst price target is about $8.20 a share. Two out of five, or 40%, rate Lilium shares Buy. The average price target is $3.33 a share.
Write to Al Root at [email protected]
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