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Martin Aircraft Company Ltd soars 44%: Is the stock a buy?

Shares of Martin Aircraft Company Ltd (ASX: MJP) have entered the stratosphere today, soaring as much as 44.7% to a high of $1.10. That compares to a 1% gain for the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO).

The surge came after the company, which is striving to commercialise the ‘Martin Jetpack’ as early as next year, said that it had entered into a number of milestone strategic agreements with groups spanning China and India, while it had also opened a European Sales Centre.

Martin Aircraft acknowledged that China is one of the fastest growing markets for aviation where recent civil aviation developments have resulted in previously off-limit airspace now being opened up for civilian operations. The agreements, which were made through its joint venture company, KuangChi Science Martin Jetpack Ltd (“KCMJ”), could enhance the company’s ability to break into the market on a larger scale in the future.

Meanwhile, the company also entered into an Alliancing Agreement with India-based M2K Group, establishing a sales presence in the region and setting Martin Aircraft up for future success in the market. Martin Aircraft’s CEO, Peter Coker, said: “Second only to China in terms of population and with the same challenges of ultra-high density urban populations, the Indian market has the right mix of economic empowerment and operational challenges that makes India an ideal market for deployment of the Martin Jetpack for use by First Responder groups.”

Should you buy?

Martin Aircraft listed on the ASX in February this year and has been extremely volatile in the time since. After falling to a low of 39.5 cents on its debut, the stock soared to a high of $3.15 but has since hit a low of 74 cents.

Although it’s easy to get excited over the stock due to its futuristic nature, it remains an extremely risky bet. To begin with, the company hasn’t even made its first sale and yet has a market capitalisation over $161 million according to Google Finance. Meanwhile, there are regulatory hurdles that Martin Aircraft must overcome to legalise the product in each of the markets it intends to penetrate, while its founder and namesake, Glenn Martin, recently resigned from the business without further explanation.

Should it succeed, Martin Aircraft could generate enormous returns for shareholders but at its current price, I believe the risks outweigh the potential benefits. Investors would be better off focusing their attention on some of the market’s safer, more promising small-cap stocks until Martin Aircraft can begin to prove its worth.

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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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