Archer Aviation (ACHR 1.00%) manufactures electric vertical takeoff and landing (eVTOL) aircraft, less formally known as air taxis. It's an industry that's in its infancy, and only time will tell whether this market "takes off" (pun fully intended).
Wagering on eVTOL stocks is highly speculative and involves high risk in the quest of substantial potential rewards. Besides, even if air taxis become commonplace someday, there's no assurance that Archer Aviation will achieve a leadership position within the industry.
There are two ways you can manage your risk if you're excited about this opportunity. But before we get into that, let's take a closer look at Archer Aviation.
Getting back to the SPAC price
Skeptics might consider Archer Aviation a textbook example of the bursting of the 2021 special purpose acquisition company (SPAC) bubble. Archer Aviation was the product of a shell company merger during the peak of SPAC mania, when easy money policy and low borrowing costs enabled rampant speculation on businesses with little chance of turning a profit anytime soon.
Archer Aviation doesn't necessarily fall into the failed SPAC category, but the company's share price has yet to return to its pre-de-SPAC price of $10. Thus, the $10 price threshold may serve as a barometer of whether Archer Aviation has beaten the SPAC stock curse or not.
There's certainly no assurance that Archer Aviation will get there. Even if air taxis gain broad adoption generally, Archer Aviation still has to face fierce competition from a similar company that's trading for a similar discount to its initial SPAC price: Joby Aviation (JOBY 4.90%).
Archer Aviation recently claimed to have nearly $600 million worth of liquidity, including $461 million of cash and cash equivalents. Consequently, even after losing $51.6 million according to generally accepted accounting principles (GAAP) during the third quarter, Archer Aviation doesn't seem to be in imminent danger of a liquidity crisis (i.e., running out of available capital to continue its operations).
Plus, for what it's worth, Archer Aviation has an aircraft purchase order valued at up to $500 million and plans to bring air taxis to India and Dubai in 2026. Whether these multinational ambitions pan out remains to be seen, of course.
Put two dogs in the race
One key element of portfolio risk management is keeping more speculative positions small. It's imperative to do that with Archer Aviation and monitor its competition if you're going to invest.
Or a second idea -- if your confidence in the flying taxi market is strong but your faith in Archer Aviation is shaky -- is to take a small, equal-sized share position in both Archer Aviation stock and Joby Aviation stock while they're still under $10.
Barclays analyst David Zazula seemed to suggest that Joby Aviation is the likely leader among the two, with Archer Aviation trailing not far behind. There may be merit to that idea, at least from a liquidity standpoint, as Joby Aviation had $1.1 billion worth of cash and short-term investments at the end of the third quarter.
Plus, Joby Aviation has a $131 million Defense Department contract and delivered an aircraft to the Air Force "months ahead of schedule." So, perhaps enterprising investors can hold some Joby Aviation stock for U.S. exposure and some Archer Aviation stock in hopes of eventually getting international exposure.
Sure, there's a great deal of hope and speculation involved here. Adding Joby Aviation stock to a position in Archer Aviation stock won't provide much diversification, and investors should be fully prepared for one or both of these stocks to possibly never revisit $10 again. Still, if your conviction in the eVTOL industry's growth is firm and you don't mind waiting years for a liftoff that might never happen, it might be best to add a little bit of Archer Aviation stock, supplemented with a tiny stake in Joby Aviation stock, while they're both still under $10.
