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Should You be Buying Wheels Up Experience Stock on the Dip?

The heightened demand being seen by the private aviation industry as COVID-related fears motivate people to travel on charter flights is good for Wheels Up Experience (OPTT). However, the challenges related to high costs and growing competition make the company’s growth prospects questionable. Furthermore, given that UP’s financials look bleak, the question is, will the stock be able to recover from a decline this year in its share price? Read ahead to learn more.

Private aviation company Wheels Up Experience Inc. (UP), 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, UP 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, the company’s net decrease in cash, cash equivalents, and restricted cash amounted to $152.15 million for the six months ended June 30, 2021.

POWR Ratings Reflect Bleak Prospects

UP has an overall D rating, which translates to Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. UP has a C grade for Growth. This is reflective of the stock’s inadequate financials and weak growth potential.

The company has a C Stability grade, which indicates it is more volatile than many of its peers.

Beyond the grades that I’ve highlighted, one can check out additional UP ratings for Sentiment, Quality, Value, and Momentum here. UP is ranked #23 of 31 stocks in the F-rated Airlines industry.

Bottom Line

Even though an increase in flights and the company’s strategic initiatives to improve its active membership growth have generated significant revenue growth in the second quarter, its substantial losses and expenses could put downward pressure on UP’s stock. Also, given the ongoing challenges the private aviation industry faces, the company’s growth prospects look bleak. So, we think the stock is best avoided now.

How Does Wheels Up Experience (UP) Stack Up Against its Peers?

While UP has a D (Sell) rating in our proprietary rating system, one might want to consider looking at its industry peer, SkyWest, Inc. (SKYW), which has a B (Buy).

UP shares rose $0.09 (+1.16%) in premarket trading Friday. Year-to-date, UP has declined -22.37%, versus a 22.01% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization.


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