Vertical Aerospace: Too Hot

Summary

  • Vertical Aerospace has soared this last month after a couple of new deals for their eVTOL aircraft.
  • The former SPAC has an impressive order book for 1,500 aircraft valued at $5.6 billion, though most orders are conditional.
  • The stock is too hot having doubled off the lows, but Vertical would be appealing on the next dip.
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Conceptual eVTOL (electric vertical take-off and landing) aircraft flying against a dense forest background

adventtr/E+ via Getty Images

The eVTOL (electric vertical takeoff and landing) space remains a promising investment sector as air travel is revolutionized in the years ahead. Vertical Aerospace (NYSE:EVTL) has surged in the last couple of weeks due to announcing multiple deals, including one with American Airlines Group (AAL). My investment thesis is even more bullish on the business model, but the stock has rallied too much to buy here at $8.

EVTL Stock Chart

Source: FinViz

Big Pre-Orders

Vertical Aerospace rallied in mid-July due primarily to the big follow-up order from American Airlines with a pre-delivery payment commitment. The eVTOL manufacturer already had a large order book, but the biggest concern is that the pre-orders are conditional.

The difference with the announcement on July 15 was the major airline confirming delivery slots and a commitment to pre-delivery payments. American Airlines had pre-orders of 250 VX4 aircraft with an additional 100 options. The updated deal involves the airline reserving delivery slots for 50 aircraft.

Naturally, the airlines are looking for ways to expand services, including last mile transportation to bypass the congestion at the larger airports. The airlines would collect additional fees for passenger transport and provide a path for high-end passengers to travel more efficiently and possibly more often.

In addition, Vertical Aerospace announced a pre-order from FLYINGGROUP for up to 50 VX4 aircraft. This deal brings the total order book to 1,400 aircraft for a total value of $5.6 billion while bringing the company into the business aviation market.

Vertical Aerospace Order map

Source: Vertical Aerospace Q1'22 shareholder letter

Vertical now has a diverse order book with airlines, aircraft lessors and a business aviation jet operator. The biggest question remains when the company will obtain certification to fly the eVTOL and whether most of these conditional orders will materialize.

Big Rally

The whole eVTOL and urban air mobility space has been crushed in the last year since completing SPAC deals. Vertical Aerospace has seen the biggest rally and now trades at the closest price to the $10 SPAC deals.

In the YTD period, Vertical Aerospace has seen the best returns with the stock actually up nearly 20% now. Joby Aviation (JOBY), Archer Aviation (ACHR) and Lilium NV (LILM) have all seen massive losses with the latter down almost 60% despite announcing some recent deals as well.

EVTL vs JOBY vs ACHR vs LILM price
Data by YCharts

Compared to potential, the stock valuation of Vertical Aerospace isn't exactly egregious. The stock has a listed value of $1.7 billion while pre-orders from American Airlines alone were worth up to $1.0 billion.

The company lists the pre-order book of $5.6 billion with 1,400 aircraft order on the books for triple the valuation of the stock. Vertical Aerospace had originally predicted 2026 revenues of $3.6 billion after exerting VX4 into service in 2025 with revenue doubling to $7.3 billion in 2028, though the SEC would prefer investors not rely on these numbers, especially from a pre-revenue company still needing CAA and EASA certification to operate in the UK and Europe.

Vertical entered the year with ~$300 million in cash and doesn't plan needing the same capital to reach production due to not planning to operate a commercial urban air mobility business. The eVTOL manufacturer might have the cleanest path production with big deals from airline operators not worried about buying aircraft from a potential competitor.

Takeaway

The key investor takeaway is that Vertical Aerospace continues to build a promising order book. The stock has soared over the last few weeks already more than doubling off the $3 lows in July.

Investors should use caution chasing the hot stock, but Vertical is an intriguing investment along with other sector stocks on the next sell off. The company doesn't expect aircraft certification and production sales for a few years giving a patient investor the likely opportunity to own at lower prices.

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This article was written by

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Stone Fox Capital Advisors, LLC is a registered investment advisor founded in 2010. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA.


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Disclosure: I/we have a beneficial long position in the shares of AAL either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities. Before buying or selling any stock, you should do your own research and reach your own conclusion or consult a financial advisor. Investing includes risks, including loss of principal.

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