Investing in early-stage companies can be risky, especially when they don't even generate revenue. But sometimes, a high-risk stock can reward investors who time things right. Archer Aviation (ACHR 1.21%) has progressed in developing eVTOLs, electric vertical take-off and landing aircraft designed to travel short distances.
It's among a few companies rushing to capture what some experts believe could be a $24 billion market by 2031. The company's recent progress has helped the stock take off, soaring nearly 200% since early October.
Today, shares trade at just under $9. Should investors buy before the stock hits $10? The answer depends on how the company's future revenue and earnings compare to the stock's current $3.8 billion market value.
Here is what you need to know.
Archer Aviation is on a promising trajectory
When a company doesn't yet generate revenue, investors focus on product development and execution. To Archer Aviation's credit, the company is steadily progressing on its milestones and targets. Just over the past six months, Archer Aviation has:
- Secured a contract manufacturing partnership with financial backer Stellantis to help produce Archer Aviation's Midnight aircraft.
- Delivered a prototype aircraft to the United States Air Force as part of a contract worth up to $142 million.
- Conducted its 400th test flight four months ahead of schedule.
- Completed its production facility in Georgia for volume manufacturing.
- Announced goals to begin commercial air taxi operations in Abu Dhabi (the United Arab Emirates) as early as this year's fourth quarter (Q4).
Additionally, Archer Aviation has $1.5 billion in available funds, including $500 million in cash and zero long-term debt on its balance sheet. The company burned through about $415 million over the past four quarters, so that should buy it time to get its commercial operations off the ground (no pun intended). Archer Aviation has business lined up with early customers, partners, and investors, totaling $6 billion in orders as of Q3 2024.
Analysts anticipate the company will generate around $261 million in revenue in 2025 and steadily build to $1.1 billion in 2028. That could easily change if the company lands additional orders.
Translating the business momentum into investment value is much more complicated
NYSE: ACHR
Key Data Points
From a business standpoint, it seems Archer Aviation is well on its way to becoming an early player in the eVTOL industry. Several competitors are also developing eVTOL aircraft, including Joby Aviation, Lilium, and Airbus. Still, I think Archer Aviation's mix of commercial and military deals will carve out market share.
The more complicated question facing investors is whether the stock offers value at a $3.8 billion market capitatlization.
Assuming revenue estimates are somewhat accurate, the stock's price-to-sales (P/S) ratio is roughly 3.4 based on projected 2028 revenue. The wildcard is that nobody knows how profitable Archer Aviation will be on those sales. Profits (or lack thereof) will depend on things ranging from manufacturing efficiency to pricing pressure from competitors.
Boeing is one of only two companies building commercial airliners, and its stock trades at about 1.4 times its trailing 12-month revenue. Toyota trades at a P/S ratio of 0.8 in the more competitive automotive industry. Admittedly, these are mature companies, and Archer Aviation will probably grow much faster, so it may deserve a higher valuation.
Still, in Archer Aviation's case, we are talking about hypothetical sales years into the future. Investors must balance the upside of growth with the downside of multiple unknowns.
So, is Archer Aviation a buy?
Given where established aircraft and automotive manufacturers trade, it's hard to see much value in Archer Aviation at its current price of just over $9. The stock spent most of the past year under $5 per share, which would have reduced some of the risk associated with buying a stock based on financial projections two or three years out.
Therefore, investors shouldn't chase the stock. Archer Aviation is not a buy here. It's easy to find companies that tell a good story, but finding those that deliver on their potential is not. Archer Aviation's steady progress and milestone achievements are impressive and give investors hope that it will eventually produce the revenue growth they seek.
It's worth revisiting if the stock cools off from its recent run. Until then, there's not enough to justify overpaying to own it.
