Contemplating Investing in Archer Aviation Shares Before They Surpass $9?
Archer Aviation (ACHR -2.98%) has left many investors disappointed since its public debut three years ago. The company, which specializes in electric vertical take-off and landing (eVTOL) aircraft, went public through a merger with a special purpose acquisition company (SPAC) and started trading at $9.90, eventually reaching a peak of $17.14 in February 2021. However, today, Archer's stock is trading around $4.
The company has struggled to meet its pre-merger expectations, reported significant losses, and issued more shares to raise additional funds. Surges in interest rates have also forced investors to abandon the company's speculative, pre-revenue business. Nevertheless, analysts continue to assign an average price target of $9.06 to Archer's depreciated stock, leading some to wonder if it's worth buying at the current price, which is more than 50% below the target.
A wealth of contracts, but minimal revenue yet
Archer's Midnight eVTOL aircraft boasts a top speed of 150 miles per hour, a maximum range of 100 miles, and can carry a single pilot and four passengers. These energy-efficient, eco-friendly, quiet, and easy-to-land aircraft are well-suited for short-range air taxi services in urban areas, outperforming helicopters in these aspects.
In early 2021, United Airlines placed a long-term $1 billion order for 200 of its Midnight aircraft, a move followed by Soracle (a joint venture by Japan Airlines and Sumimoto) earlier this year, which ordered 100 Midnight aircraft for $500 million. Automaker Stellantis also invested in Archer and selected it as the exclusive manufacturer for its own eVTOL aircraft, while securing additional deals with the U.S. Air Force and Future Flight Global. These contracts could give Archer an edge in the competitive eVTOL market.
However, market analysts forecast that Archer will generate less than $1 million in revenue in 2024, with a net loss of $467 million. With an enterprise value of $1.43 billion, Archer trades at over 2,000 times that estimated revenue, indicating a steep valuation.
Can Archer expand its business in the coming years?
Before its public debut, Archer projected it could produce its first 10 aircraft in 2024. But it only delivered its first Midnight aircraft to the U.S. Air Force in August 2022, and it hopes to ramp up its annual production to 10 aircraft by 2025.
Looking ahead, Archer plans to manufacture 48 aircraft in 2026, 252 aircraft in 2027, and 650 aircraft in 2028. The company also intends to launch dedicated air taxi services with its partners and debut its first air taxi services in the UAE by the fourth quarter of 2025. If Archer achieves these targets, analysts expect its revenue to rise to $39 million in 2025 and $189 million in 2026.
The global eVTOL market is expected to grow by 51.6% annually from 2023 to 2031, according to Exactitude Consultancy. If Archer can maintain its early-mover advantage in this burgeoning market, it could have ample growth potential.
However, Archer faces stiff competition from other eVTOL manufacturers like Joby Aviation, aerospace giants like Boeing, and even automakers like Hyundai Motor. Archer is also unlikely to turn a profit anytime soon and ended its latest quarter with only $502 million in cash and equivalents. The company has increased its share count by nearly 80% since its SPAC merger and may continue to dilute its shareholders to raise additional funds.
Is Archer's stock worth purchasing at these prices?
If Archer manages to increase its production and meets analysts' expectations, it may appear reasonably priced at 8 times its projected 2026 revenue. If you believe it can achieve its goals, it could potentially be a profitable investment as skepticism persists. This optimism is evidenced by its insiders purchasing 22 times as many shares as they sold over the past 12 months, suggesting it could be a lucrative investment for patient investors.
Despite the average price target of $9.06, some investors might consider purchasing Archer's stock due to its potential growth in the burgeoning eVTOL market and analysts' expectations of rising revenue. However, with the company's current steep valuation of over 2,000 times its estimated 2024 revenue, investors should carefully weigh the risks associated with Archer's financial situation, significant losses, and ambitious production goals.
Investors looking for opportunities in the eVTOL sector might find interest in Archer's substantial contracts with major companies, such as United Airlines, Oracle, and Stellantis, as well as deals with the U.S. Air Force and Future Flight Global. These partnerships give Archer an edge in the competitive market and could potentially lead to further revenue and growth opportunities.
To successfully invest in Archer, investors will need to consider the company's financial prospects, its ability to overcome competition and meet production targets, and the future growth potential of the global eVTOL market. With a patient and calculated approach, some may find the current stock price worth considering, especially in light of insiders buying significantly more shares than they have sold over the past 12 months.
