One of the hottest growth stocks of late is Archer Aviation (ACHR 2.60%), which has the potential to revolutionize travel with its electric vertical take-off and landing (eVTOL) aircraft. People taking its Midnight aircraft could conceivably fly over gridlock rather than being stuck in bumper-to-bumper traffic. There are many possible uses for the piloted electric air taxi, which is quieter than a helicopter and has zero operating emissions.
Given all the potential for the stock, can this be a possible 40-bagger investment -- one that turns a $25,000 into $1 million in the future?
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The business is still in its very early stages
One thing investors need to be aware of is that while there are significant opportunities for Archer, it still has to obtain approval for its Midnight aircraft, and for it to produce it at scale. It has obtained multiple approvals from the Federal Aviation Administration thus far, and the hope is that it may not be too long until the aircraft is cleared for use in the U.S.
But even if that happens, the company still needs to ramp up production. The Midnight aircraft can accommodate four passengers, so the company will need to develop a considerable fleet before it can truly become a big player in the air taxi industry. Its goal is to be producing 650 aircraft per year by the end of the decade. This year, it's aiming to get to just two per month.
Since it's so early in its development, Archer isn't generating any revenue thus far, and its losses have totaled $514 million over the past four quarters. The good news is the business is already seeing strong demand, with a backlog of around $6 billion thus far, including United Airlines, which has ordered 200 of Archer's eVTOL aircraft already, plus an option for 100 more.
Is a valuation of $220 billion a possibility for Archer?
If Archer proves to be a 40x investment, its valuation would need to reach more than $220 billion in the future, given its current market cap of around $5.6 billion. If air taxis truly revolutionize travel and demand for Archer's aircraft takes off, that can be a possibility in the very long run.
But that's a scenario that's also riddled with multiple ifs. The necessary infrastructure needs to be built, and air spaces would become more crowded, which could result in greater legislation and red tape along the way. And with the company still in the early stages of producing its aircraft, it's also difficult to know what kind of margins it will make on them and how profitable the business may or may not be.
A lot of things would need to go right for the business for it to be worth well over $200 billion. Forecasting the future for an industry that's still in its infancy is not easy. And while there's certainly potential for Archer's valuation to grow significantly, investors shouldn't assume that the stock is destined for greatness and that it can generate 40x returns, even over the very long term.
NYSE: ACHR
Key Data Points
Should you invest in Archer stock today?
Even though investing in Archer may not be a surefire path to becoming a millionaire, it may still be a growth stock worth adding to your portfolio. If you're comfortable with the risk and uncertainty that comes with this business, it could make for a good buy-and-hold investment.
However, given the risk involved, I wouldn't suggest investing more than 5% of your portfolio into the stock. By allocating just a modest amount of money into Archer, you can limit your losses while still giving yourself the possibility to benefit from its growth in the long run.
