This eVTOL aircraft maker could have a bright future.
Archer Aviation (ACHR 14.23%) has disappointed a lot of investors since its public debut three years ago. The developer of electric vertical take-off and landing (eVTOL) aircraft went public by merging with a special purpose acquisition company (SPAC), and it started trading at $9.90 and soared to a record high of $17.14 in February 2021. But today, Archer’s stock trades at about $4.
It crashed and burned as it missed its own pre-merger expectations, racked up steep losses, and issued a lot more shares to raise fresh cash. Rising interest rates also rattled investors and drove them away from its speculative pre-revenue business. However, analysts still have an average price target of $9.06 for Archer’s beaten-down stock. Should investors buy it today as it languishes more than 50% below that price?
Image source: Archer Aviation.
Plenty of deals, but not much revenue yet
Archer’s Midnight eVTOL aircraft has a maximum speed of 150 miles per hour, a max range of 100 miles, and can carry a single pilot and four passengers. These electric aircraft are cheaper, cleaner, quieter, and easier to land in urban areas than helicopters, so they’re well suited for short-range air taxi services.
In early 2021, United Airlines placed a long-term $1 billion order for 200 of its Midnight aircraft. In 2022, it paid Archer a $10 million deposit for the first 100 aircraft. In 2023, automaker Stellantis invested in Archer and selected it as the exclusive contract manufacturer for its own eVTOL aircraft. Archer also secured additional deals with the U.S. Air Force and Future Flight Global.
Earlier this year, Soracle — a new joint venture formed by Japan Airlines and Sumimoto — followed United’s lead and placed a $500 million order for 100 Midnight aircraft. All of those deals could help Archer outlast its other competitors in the fragmented eVTOL market.
But for 2024, analysts expect Archer Aviation to generate less than $1 million in revenue as it racks up a net loss of $467 million. With an enterprise value of $1.43 billion, Archer trades at more than 2,000 times that sales estimate.
Can Archer scale up its business over the next few years?
Prior to going public, Archer claimed it could produce its first 10 aircraft in 2024. But it only delivered its first Midnight aircraft to the U.S. Air Force this August, and it’s aiming to ramp up its annual production to 10 aircraft in 2025.
But looking further ahead, Archer plans to produce 48 aircraft in 2026, 252 aircraft in 2027, and 650 aircraft in 2028. It’s also establishing dedicated air taxi routes with its partners, and it expects to launch its first air taxi services in the UAE as early as the fourth quarter of 2025.
Assuming it successfully hits those ambitious targets, analysts expect its revenue to rise to $39 million in 2025 and $189 million in 2026. According to Exactitude Consultancy, the global eVTOL market could grow at a compound annual growth rate (CAGR) of 51.6% from 2023 to 2031.
If Archer maintains its early mover’s advantage in this nascent market, it could have plenty of room to grow. But it also faces fierce competition from similar eVTOL makers like Joby Aviation, aerospace giants like Boeing, and even automakers like Hyundai Motor. Archer also isn’t expected to break even anytime soon, and it ended its latest quarter with just $502 million in cash and equivalents. It’s also increased its share count by nearly 80% since it closed its SPAC merger — and it will likely keep diluting its investors to raise more cash.
Should you buy Archer’s stock at these levels?
If Archer Aviation ramps up its production and matches analysts’ expectations, then it doesn’t seem too expensive at 8 times its 2026 sales. So if you believe it can achieve its goals, then it might be a good stock to nibble on as the bulls look the other way. That might be why its insiders bought 22 times as many shares as they sold over the past 12 months — and why it might be a potential multibagger for patient investors.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
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