We came across a bullish thesis on Sky Harbour Group Corporation (SKYH) on Kairos research’s Substack by Kairos research. In this article, we will summarize the bulls’ thesis on SKYH. SKYH Technologies, Inc. share was trading at $13 as of Sept 24th. SKYH’s trailing P/E were 15.07 according to Yahoo Finance.
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Sky Harbor Group develops and leases high-end hangars for private and business aircrafts. These sites come with luxury amenities like lounges and office space which offer various on-demand services. This setup is intended to be a permanent base which distinguishes them from typical FBOs that mainly serve transient traffic and rely heavily on fuel sales. Sky Harbor’s approach focuses on rental income while it deliberately keeps fuel prices low to stand out from its competitors.
Sky Harbor builds hangars that are bigger than the older existing ones in order to accommodate modern jets giving Sky Harbor an edge. As their pricing power is strong they are planning to raise rent significantly helping them earn a premium. SKYH is expected to experience growth due to the supply-demand imbalance created due to the large backlog of jet orders making the issue of lack of space for storing jets more prominent. To take advantage of this opportunity the company has raised sufficient capital to develop nine to ten campuses.
SKYH has been facing challenges in securing prime airport leases and has high capital requirements as each campus costs about $45-60 million to build, leading to substantial funding needs as they aim for 50 airfields in total. The integration of RapidBuilt, a company that manufactures hangar components, should help lower construction costs and speed up development times, but high debt levels still pose a risk.
Overall their business model looks attractive as its distinct role in the expanding private aviation industry providing permanent hangar solutions for private jets, sets it apart from conventional fixed-base operators. By prioritizing rental income and supplementary services, Sky Harbour benefits from substantial pricing power as demand for hangar space rises amid limited supply. With plans to grow to 30-50 airports, particularly in tier-one markets with much higher rental rates, Sky Harbour aims for unlevered returns in the range of 13-20%, supported by robust unit economics thus considering the base case scenario a target price of $40 shows that the company seems like a good buy at current levels.
Sky Harbour Group Corporation is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 4 hedge fund portfolios held SKYH at the end of the second quarter which was 4 in the previous quarter. While we acknowledge the risk and potential of SKYH as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SKYH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.