It's not often you find a stock with the potential to 10x your investment in under five years. But Archer Aviation (ACHR 1.00%), a company making headway in the electric vertical take-off and landing (eVTOL) aircraft space, could be that diamond in the rough.
Let's explore what Archer has to offer and the risks of investing in its shares at this early stage.
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The opportunity in focus
Archer Aviation, which launched in 2018 and went public in 2021, is leaving its mark on the eVTOL aircraft industry. But it's been quite the roller coaster. Since their public debut, Archer's shares have plummeted by more than 50%, reflecting the market's skittishness toward risky start-ups since the Federal Reserve began raising interest rates in March 2022.
Let's change lanes and dive into the global eVTOL aircraft market. This untapped market is projected to expand at a steady 21.5% compound annual growth rate from 2024 to 2034, according to a recent report by Fact.MR. By then, it's expected to balloon into a $46 billion industry.
But Morgan Stanley, a powerhouse in the investment banking world, has an even brighter outlook. Its analysts predict the industry could be worth over $1 trillion by 2040, driven by global demand for alternative forms of transportation, especially in traffic-clogged cities.
And that's not all. The investment bank's team believes the global eVTOL market could hit a mind-boggling $9 trillion by 2050.
This mouth-watering opportunity hasn't gone unnoticed. The emerging urban air mobility market has caught the eye of major commercial airlines, governments, top-tier investors, aerospace giants, and innovative start-ups like Archer Aviation.
In essence, the prospect of striking gold with one of these pioneers in urban air mobility seems more than just wishful thinking. To highlight this point, Archer's market cap currently stands at approximately $1.4 billion.
Archer's market cap has the potential to surge more than 16-fold with just a 10% market share by 2034, according to Fact.MR's conservative estimate and a reasonable price-to-sales ratio of 5. However, if the forecasts by Morgan Stanley prove accurate, Archer might just emerge as the next growth stock akin to tech titan Amazon.
For reference, Amazon stock has delivered a staggering 178-fold return on investment since its early days as a start-up. If the stars align, Archer's shares could very well follow a similar growth trajectory over the next 30 years.
AMZN Total Return Level data by YCharts
Risks to consider
Currently, Archer's cash flow is in the red. Furthermore, it's gearing up for net losses every quarter until its commercial operations get underway in earnest -- a process that might take another 12 to 24 months to play out. Plus, there's no guarantee Archer will secure regulatory approvals to fly its aircraft.
Another risk to consider is the adoption rate of this new mode of transportation. Archer and its competitors are aiming to make eVTOL the Uber of the skies. While some folks might be quick to jump on board, others might see it as too risky.
This could be an irrational stance, especially if Archer manages to get its Midnight aircraft certified by regulators. But investors shouldn't overlook this psychological hurdle that could hamper its widespread adoption.
Is Archer Aviation stock worth the risk?
So is it worth taking a flier on Archer Aviation stock? That's the million-dollar question. Like any investment, it's essential to balance the potential gains against the risks.
When it comes to Archer, the sky's the limit. But this tech is still in its infancy, and it's hard to predict how its regulatory review will pan out or whether potential customers will take to it.
From my perspective, eVTOL is an absolute must in today's world. With traffic congestion choking major cities worldwide, affordable flying vehicles could be the solution to this growing problem.
Given that this potentially game-changing tech addresses a major issue in urban development, I'm planning to up my stake in Archer in a big way over the next 24 months. Despite the risks, I believe this speculative growth stock has one of the most attractive risk-to-reward ratios in today's market, and it could be one of the best investing opportunities ever.
