EH Stock: No Future or Future of Travel?
Can you imagine a world where you step into a self-flying taxi, and it takes you to where you need to go? Well, that could be a reality soon with EHang’s (Nasdaq: EH) aerial vehicle platform. Despite a recent jump in EH stock price, the company is trading largely under the radar.
EH share prices exploded almost 550% to start 2021, reaching over $129 per share. But, since then, EH stock is trending lower, settling over $15.50 a share.
At the same time, overall market weakness can be a big factor. That said, highly valued growth stocks are getting hit the hardest with investors unloading risk so far this year. China-based companies are also struggling with new regulations aiming at tech companies.
With EH stock down over 87% from its highs, is it time to start watching EHang? Keep reading to find out the big moves the company is taking to bring its product to market.
What Exactly is EHang Holdings?
EHang Holdings is on a mission to change the way people think about travel. Traditional ways of traveling are polluting cities with harmful emissions. In fact, research from the Environmental Protection Agency (EPA) confirms passenger cars contribute the most emissions.
With this in mind, EHang is building autonomous aerial vehicles (AAVs), or in other words, self-flying taxis. The vehicles can be helpful in several ways, such as:
- Media solutions
- Smart city management
- And passenger travel
As cities are becoming more densely populated, congestion and pollution are lowering the quality of urban life.
Although the company is early stage, EHang is making big strides to give cities a new tool to combat the negative effects. That said, the company is proving its technology can change the future of travel.
So far, the company has successfully achieved over 20,000 trial flights across 11 different countries. On top of this, EHang is working with the Civil Aviation Administration of China (CAAC) to obtain the EH216 certification.
As of right now, the CAAC is allowing EHang to increase trial flights while the certification processes gradually. Moreover, the company already has seven operational spots in China, where it conducts short-distance air travel.
The plan is to make it easy and accessible for everyone. The company is also developing a digital platform that supports online booking, payments, and vehicle monitoring.
What’s Happening With EH Stock?
The idea sounds great and all, but EH stock is down 87% from its highs. Even though the company is making solid progress, it still is not profitable.
Nonetheless, the company reached a $3.63 billion market cap to start 2021. Since then, several events are pressuring EH stock, with investors questioning its ability to follow through with promises.
Most important, a report from short-seller Wolfpack Research details the company’s “elaborate stock promotion.” The research firm claims EH is falsely inflating sales with uncredible customer contracts.
For example, Wolfpack claims EHang’s primary customer is Shanghai Kunxiang Intelligent Technology Co, also an investor in the company. The report details fake office buildings, inflated contracts, and disgruntled employees, all as an attempt to pump the stock price.
Ehang has since denied the claims, saying “(the tech company) is one of EHang’s customers, but it is not a related party.”
All in all, a report like this can scare investors away whether it is true or not. Evidently, in Ehang’s case, investors are taking the sidelines until the company can prove more.
Furthermore, the global stock market is down overall in the past few months putting further pressure on EH stock. And with weak earnings, nothing is drawing investors back in for now.
To make matters worse, the company’s third-quarter earnings missed expectations. Despite big expectations this quarter, the company’s top and bottom line shrank from a year ago.
On the other hand, EHang has a healthy balance sheet with over $44 million in cash. Even more, the company has very little debt, with only $3.1 million and $18.39 million in current liabilities.
With this in mind, EHang has the cash to continue doing business. But the big question comes as revenue and earnings per share (EPS) are shrinking.
To attract investors, company’s need to show they can continue growing. In EHang’s case, a falling top and bottom line does not align with growth investors.
At the same time, the AAV company is in a new industry, which can often present roadblocks. If EHang wants to attract investors again, it will need to be consistent. The first step will be obtaining the EH216 certificate while finalizing the details with the CAAC.
EHang has a huge market opportunity in its hands on the positive side of things. And being a leader in new markets can provide explosive growth.
For example, look at what Tesla (NYSE: TSLA) is accomplishing. Despite several attacks from short-sellers, Tesla is earning record profits while demand remains steady. Can EHang do the same with self-flying taxis?
According to new research, the eVTOL market is set to explode in the coming years with record 35.74% growth. The easier, more efficient travel method is ready to take off in Europe and Asia.
EH Stock Forecast: Where Do We Go From Here?
It’s been a bumpy ride for EHang investors, with huge expectations being crushed by a short seller’s report. Yet the company still has potential. And if its technology works the way it says it does, it has a market to sell to.
At the same time, it will take time for the company to grow into it. EHang still needs to pass several hurdles before launching its first commercial flight. If and when this happens, it will be big for travel.
Although it will be some time before the company becomes profitable, it still needs to show investors it’s making the right moves for future growth. So far, the company is doing what it can in a limited market with high regulations.
As the company clears these hurdles, look for the growth to start accelerating. If this happens, investors will start circling back to EH stock. But growth is key here. Without proof of customers, it will be hard to convince investors otherwise.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.