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Why Martin Aircraft Company Ltd just got a whole lot riskier

The investment case for Martin Aircraft Company Ltd (ASX: MJP) just got a whole lot riskier after the company announced the resignation of founder and director, Glenn Martin, effective immediately.

Martin Aircraft made an explosive debut when it listed on the ASX late in February, at which point it traded for as little as 39.5 cents per share. Within two weeks, it had rocketed almost 700% higher, maxing out at $3.15 before crashing down to earth once again. As of yesterday’s close, it traded for 78 cents but has fallen nearly 4% in the early part of today’s session.

The loss of Mr. Martin is a key blow for the group and could impact the company’s ability to commercialise its jetpack by 2016. As highlighted in Martin Aircraft’s prospectus its first model known as ‘First Responder Jetpacks’ has been designed for emergency services such as fire crews and search-and-rescue services. It is tipped to market for US$200,000 provided that it can receive the necessary regulatory approval.

No specific reasons were given regarding Mr Martin’s resignation, which is likely to make investors somewhat nervous.

Should you buy?

While there is certainly some commercial viability to the business, there were always going to be significant regulatory hurdles it would need to overcome before it could even make its first sale. Given that the unprofitable company already has a market capitalisation of $136 million, any significant setbacks are likely to have a heavy impact on the company’s future potential and its share price as well.

The loss of Mr. Martin is a red flag for the business and should be a warning sign for investors to stay away, at least until it can prove its ability to properly take off. Rather than taking an unnecessary risk on Martin Aircraft, there are other great small-cap stocks to buy now that could reap massive rewards in the future.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned. You can follow Ryan on Twitter @ASXvalueinvest.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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