Should You be Buying This Aviation Stock on the Dip?

This private aviation company, which is headquartered in New York City, provides on-demand flights across various private aircraft cabin categories, aircraft acquisitions and sales, commercial travel, and a…

suite of other services. On July 14, 2021, Wheels Up Experience Inc. (UP – Get Rating) went public through an SPAC merger. A substantial increase in demand across all cabin classes and a compelling membership model have contributed to the company’s accelerating revenue growth in its last reported quarter.

However, closing yesterday’s trading session at $7.74, UP’s stock is trading 48.4% below its 52-week price high of $15. In addition, the stock has lost 4.5% in price over the past month and 23.6% year-to-date, indicating bearishness. Indeed, UP is currently trading lower than its 50-day and 200-day moving averages of $8.74 and $9.83, respectively, which indicates a downtrend.

Although pandemic-related anxieties have fostered a growing consumer preference for flying by private aircraft, the pricing may be a deterrent for many. Moreover, since UP is still a small company in the competitive aviation industry, the stock could  experience more dramatic price swings in the near term.

Here is what we think could influence UP’s performance in the upcoming months:

Industry Headwinds

Suffice to say; the travel industry suffered an unprecedented setback with the pandemic last year. While private aviation companies saw a record plunge in revenues in the first few months of 2020, given commercial airlines’ health and safety fears, the demand for charter flights soon bounced back. However, since business travel remains almost non-existent as COVID-19 cases continue to rise, private aviation companies’ revenues could be impacted. Also, , while high-end travelers could splurge on private aircraft travel, the high cost of private aircraft travel could still be a disincentive for many. Furthermore, as the private aviation industry makes rapid advances with more mergers and acquisition activity, dominant players could grow their market shares significantly. But as the industry grows more competitive over the next few years, relatively smaller players like UP could have a hard time staying afloat.

Unstable Financials

Although UP’s total revenue came in at $285.6 million, representing a 113% year-over-year increase, in the second quarter, ended June 30, 2021, the company’s total costs and expenses rose 99.4% from its year-ago value to $310.38 million. In addition,  UP’s adjusted EBITDA came in at negative $8.48 million for the quarter. UP’s operating loss grew 16.3% year-over-year to $24.8 million. Also, it reported a $28.95 million net loss , up 5.8% from the year-ago value. Its interest income declined 88% year-over-year to $6,000. Furthermore…

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