EHang: Week of Warfare for Stock Market Gurus

What a con­flict­ing week for EHang (EH) investors as stock mar­ket gurus went to war. It was the usu­al con­flict between busi­ness fun­da­men­tals v share price momen­tum. The for­mer close­ly scru­ti­nis­es a company’s present intrin­sic val­ue, where­as the oth­er throws cau­tion to the wind and focus­es on future poten­tial and investor pop­u­lar­i­ty.

That was the week that was for EHang.

Those in ring left, was led by expe­ri­enced finan­cial jour­nal­ist, Louis Navel­li­er. Described as “one of Wall Street’s renowned growth investors, who has pro­vid­ed invest­ment advice to tens of thou­sands of investors for more than three decades”, his arti­cle, post­ed on investorplace.com and enti­tled “EHang Stock Could Be a Vehi­cle for High-Alti­tude Returns”, then sub­ti­tled, “EH stock could be your low-key bet on a poten­tial­ly high-fly­ing indus­try”, flew the flag for future poten­tial.

Louis Navel­li­er

He writes, “We’re giv­ing the stock an “A” grade, not only for EHang’s progress in the fly­ing car mar­ket, but because the com­pa­ny recent­ly invest­ed in next-gen­er­a­tion bat­tery tech­nol­o­gy… We encour­age you to expand your hori­zons as a diver­si­fied investor.”

With a gen­tle dig at the fun­da­men­tal­ists, “When an indus­try is still in its ear­ly stages, it makes lit­tle sense to obsess over tra­di­tion­al val­u­a­tion met­rics,” while admit­ting that EHang “isn’t cur­rent­ly prof­itable”, he goes on, “Con­sid­er assign­ing a val­ue based on the company’s poten­tial future growth.”

Navel­li­er then lists a series of recent pos­i­tive com­pa­ny news includ­ing the five EH216 AAV units recent­ly sold to Shen­zhen Boe­ing Hold­ings Group along­side “a poten­tial promise” of a fur­ther 95 in the future; that the Chi­nese CAAC has approved EHang’s Unmanned Air­craft Cloud Sys­tem for tri­al flights; not for­get­ting, as the AAV com­pa­ny con­tin­u­al­ly reminds investors, that its 216 air­craft is now over 95 per­cent towards gain­ing full cer­ti­fi­ca­tion, allow­ing com­mer­cial oper­a­tions to begin. And then there is the lat­est news that EHang is close­ly involved in next-gen­er­a­tion bat­tery tech­nol­o­gy. 

He points out, “EHang is ahead of the curve as the com­pa­ny recent­ly announced a strate­gic invest­ment in Chi­na-based Shen­zhen Inx Tech­nol­o­gy, col­lab­o­rat­ing to devel­op sol­id-state lithi­um met­al bat­ter­ies.” And con­tin­ues, “This savvy invest­ment in AEV bat­tery tech­nol­o­gy makes sense and could give EHang a notable com­pet­i­tive advan­tage in the long run.”

Sign­ing of the EHang/Shenzhen Boe­ing Agree­ment (Cred­it: EHang)

Navel­li­er con­cludes, “There­fore, regard­less of tra­di­tion­al val­u­a­tion met­rics, EH stock looks under­val­ued and deserves a con­fi­dent “A” grade. Before you know it, EHang might be a house­hold name or at least a top­ic of con­ver­sa­tion on Wall Street. ”

To add cre­dence to his view, nasdaq.com then picked up on the arti­cle and post­ed it on their web­site, before then tak­ing over the bugle fan­fare.

Under the title “3 Fly­ing Car Stocks That Can Dou­ble by the End of 2024”, EHang is firm­ly placed in the top 3 of the lead­ing glob­al eVTOL com­pa­nies along­side Joby and Archer Avi­a­tion. The arti­cles states, “The stock has wit­nessed a ral­ly like Joby with an upside of 89 per­cent for year-to-date… EH is poised for mul­ti-bag­ger returns.”

Like Navel­li­er, the arti­cle lists a series of recent EHang accom­plish­ments. In July, the com­pa­ny announced a USD23 mil­lion pri­vate place­ment fund­ing by strate­gic investors… it has expand­ed test flights to Asia and Europe, com­plet­ing 39,000 demon­stra­tions and tri­al flights in 14 coun­tries… with a big address­able mar­ket, the com­pa­ny seems posi­tioned to boost its order book in the com­ing years.” 

EHang’s Past 6 Months Share Price

In ring right, the fun­da­men­tal­ists appear with a series of heavy punch­es to quash the left’s seem­ing­ly light-weight jabs. Led by gurufocus.com and sup­port­ed from claytoncountyregister.com, it is no holds barred.

Under the title “EHang’s True Val­ue: Is It Over­priced? An In-Depth Explo­ration”, then sub­ti­tled,  “Unrav­el­ing the intrin­sic val­ue of EHang using GuruFocus’s (GF) pro­pri­etary val­u­a­tion mod­el,” the web­site means busi­ness.

It begins, “At its cur­rent price, EHang has a mar­ket cap of USD1.10 bil­lion. The stock appears to be sig­nif­i­cant­ly over­val­ued when com­pared to our esti­mat­ed fair val­ue of USD8.37.” GF brazen­ly boasts of its “exclu­sive method” to derive this stock val­ue, using his­tor­i­cal ratio mul­ti­ples, past returns and growth along­side future esti­mates of busi­ness per­for­mance.

Based on this, “the stock appears to be sig­nif­i­cant­ly over­val­ued. This sug­gests that the long-term return of EHang’s stock is like­ly to be much low­er than its future busi­ness growth.”

Even so, the web­site grudg­ing­ly admits, “EHang has a cash-to-debt ratio of 0.9, which is bet­ter than 53.74% of 294 com­pa­nies in the Aero­space & Defense indus­try. Guru­Fo­cus ranks the over­all finan­cial strength of the com­pa­ny at 5 out of 10, indi­cat­ing that its finan­cial strength is fair.”

Yet imme­di­ate­ly jabs, “EHang Hold­ings has been prof­itable 0 over the past 10 years. Over the past twelve months, the com­pa­ny had a rev­enue of USD8 mil­lion and Loss Per Share of USD0.85. Its oper­at­ing mar­gins is ‑562.41%, which ranks worse than 96.95% of 295 com­pa­nies in the Aero­space & Defense indus­try. Over­all, the prof­itabil­i­ty of EHang is ranked 1 out of 10, indi­cat­ing poor prof­itabil­i­ty.”

Ouch!

After all the ini­tial pos­i­tive views, guru­fo­cus places the knock out punch and investors wake up with a headache befit­ting a night of drunk­en debauch­ery.

But does all this “exclu­sive pro­pri­etary val­u­a­tion mod­el” real­ly mean much? Invest­ing in a stock mar­ket share that is lead­ing the green avi­a­tion rev­o­lu­tion is also about sup­port­ing a bet­ter world. Of course, EHang is not mak­ing a prof­it, but might it be in five years time? Yes, the eVTOL indus­try is risky, very risky, but if you want to place your mon­ey in dull blue-chip com­pa­nies like the util­i­ty sec­tor, for exam­ple, so be it. Every­one believed banks were “blue-chip certs” until 2008 struck.

Of course, a bal­anced port­fo­lio is essen­tial, but sure­ly an occa­sion­al flut­ter is required to keep bore­dom away from the door? guru­fo­cus con­tin­ues its heavy hit­ting by con­clud­ing, “The company’s finan­cial con­di­tion is fair and its prof­itabil­i­ty is poor. Its growth ranks worse than 93.1% of 232 com­pa­nies in the Aero­space & Defense indus­try.” How impor­tant is this? Obvi­ous­ly, don’t invest your house on EHang, but a flut­ter to expe­ri­ence the spills and thrills is, per­haps, one way of look­ing at the com­pa­ny? 

It is pos­si­ble that when the world views the Voloc­i­ty fly­ing at the Paris Olympic Games in 10 months time, cou­pled with Archer’s first U.S com­mer­cial for­ay the fol­low­ing year, eVTOL shares could become the new dot­com bub­ble? The excite­ment of see­ing these fly­ing air­craft may gen­er­ate a fren­zy of share buy­ing, yet no-one wants the next share price boom and bust as EHang expe­ri­enced back in Feb­ru­ary, 2021. 

While, com­mon sense must pre­vail, every­one should enjoy an occa­sion­al flut­ter… sure­ly?

For more infor­ma­tion

https://investorplace.com

https://www.nasdaq.com/

https://www.gurufocus.com/

(Top image: EHang 216 AAV)