On Tuesday, Surf Air Mobility Inc (NYSE:SRFM) stock experienced a change in its rating as Bernstein SocGen Group shifted its stance from Outperform to Market Perform.
Accompanying this downgrade, the firm also adjusted the price target for the company's shares to $0.40, a significant decrease from the previous target of $3.62.
Surf Air Mobility, which is in the process of developing a hybrid-electric powertrain for aircraft and creating a digital marketplace for Regional Air Mobility (RAM), is aiming to address unfulfilled demands in the RAM sector.
The analyst noted the potential for significant market opportunities, citing an addressable market for RAM that could be worth $12-18 billion by 2035 due to technological advances.
The downgrade was influenced by concerns over the company's financial structure. The analyst pointed out that Surf Air Mobility is depleting its funds at a rate of $16-18 million per quarter while maintaining a cash balance in the single digits.
Despite having access to committed financing through the GEM facility, which allows for $90 million in committed draws and the possibility of up to $296 million in follow-on draws, the analyst highlighted the risk of substantial dilution. This risk is exacerbated by the stock's recent performance.
The company's strategy involves retrofitting existing aircraft frames with new technology to speed up the product's time to market. This approach is part of a broader effort to establish a foothold in the emerging RAM industry, which is expected to grow in the coming years.
As of the end of the first quarter of 2024, Surf Air Mobility still has the option to draw upon the significant financial resources provided by the GEM facility.
However, the analyst's concerns regarding the potential dilutive effect of using this financing option have led to a more cautious outlook on the company's stock.
InvestingPro Insights
Surf Air Mobility Inc's (NYSE:SRFM) financial challenges are reflected in its significant debt and difficulty in covering interest payments, as highlighted by InvestingPro Tips. With a market cap of just $27.85 million and a concerning revenue growth to profitability ratio, the company's financial health is precarious. Despite an impressive revenue growth of over 308% in the last twelve months as of Q1 2024, the gross profit margin stands at a mere 2.18%, emphasizing inefficiencies in converting sales into actual profit. Moreover, the stock's price has plummeted, losing over 89% of its value year-over-year as of the same period, and currently trades at only 6.99% of its 52-week high.
Investors should note that while analysts anticipate sales growth in the current year, they do not expect the company to be profitable within this timeframe. The company's stock is characterized by high volatility and has been hit hard over the last week, month, and quarter. These factors, combined with the absence of dividend payments to shareholders, paint a challenging picture for potential investors.
For those considering an investment in Surf Air Mobility, it is crucial to understand the full scope of the company's financial position and market performance. For additional insights, there are 17 additional InvestingPro Tips available. To access these insights and more, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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