Archer Aviation's (ACHR -9.93%) stock rallied more than 150% over the past 12 months. The developer of electric vertical take-off and landing (eVTOL) aircraft impressed the market as it secured more partnerships and inched closer to a full approval of its U.S. air taxi flights.
At $13, its stock trades less than $1 below its 52-week high of $13.92 on May 16. But it's still well below Wall Street's top price target of $18, which H.C. Wainwright's analysts set in June. The firm expects that growth to be driven by its expansion of Archer's urban air taxi business, its government contracts, and its diversification into other industries. Should investors buy Archer's stock before it reaches that price? Or is it due for a breather until it generates enough revenue to support its soaring valuations?
Image source: Archer Aviation.
The bull case for Archer Aviation
Archer's Midnight eVTOL aircraft carries a single pilot and four passengers, travels up to 100 miles on a single charge, and can reach a maximum speed of 150 miles per hour. Its drone-like design also makes it easier to land than helicopters in crowded urban areas. Those advantages make the Midnight well-suited for short-range air taxi services.
Its top customers already include United Airlines (UAL 0.38%), which placed an order for 200 Midnight aircraft; Future Flight Global, which ordered 116 aircraft; and Soracle (a joint venture between Japan Airlines and Sumimoto), which ordered 100 aircraft. Its other new customers include Ethiopian Airlines and Abu Dhabi Aviation.
All of those companies plan to launch air taxi routes with Archer's Midnight aircraft in the near future. It recently completed its first test flights in Abu Dhabi, and it aims to start its commercial flights this year. In the U.S., it expects the Federal Aviation Administration (FAA) to grant it a final approval for its commercial flights this year to clear the way for its first air taxi flights. Archer also plans to launch its own first-party air taxi service within the next two years, and it expects its flights to eventually cost about the same as Uber's (UBER 0.52%) premium UberBlack service. To support that launch, it secured a spot as the official air taxi services provider for the Summer Olympics in L.A. in 2028.
The automaker Stellantis (STLA 1.33%), one of Archer's top investors, also hired the company as a contract manufacturer for its own branded eVTOL aircraft. Other automakers and aviation companies could eventually follow that lead and hire Archer to produce their own eVTOL aircraft.
Archer should also secure more government contracts. It already delivered its first aircraft to the U.S. Air Force (USAF) for testing purposes as part of its contract with the Department of Defense last year, and it's expected to deliver up to five more aircraft to the U.S. Air Force over the next few years.
By sticking to that roadmap, Archer aims to produce 10 aircraft in 2025, 48 aircraft in 2026, 252 aircraft in 2027, and 650 aircraft in 2028. That aggressive expansion should be supported by Stellantis' ongoing investments, more rounds of funding, and its new artificial intelligence (AI) partnership with Palantir (PLTR -1.30%) to optimize its manufacturing capabilities and aviation systems. If that happens, analysts expect Archer's revenue to soar from $13 million in 2025 to $437 million in 2027.
But with an order backlog of about $6 billion, it could grow even larger over the following years as it displaces traditional helicopters with its sleeker, quieter, and greener aircraft. That might be why its insiders bought more than 7 times as many shares as they sold over the past 12 months.
The bear case against Archer Aviation
Archer has a lot of growth potential, but it isn't generating any meaningful revenue yet. It's expected to lose more than half a billion dollars annually through 2027, which means it will need to keep diluting its own shares and taking on more debt to stay solvent through its expansion.
That's why its number of outstanding shares increased by 127% over the past three years. It ended its latest quarter with a manageable debt-to-equity ratio of 0.2, but that was partly because its newly issued shares increased its shareholder equity relative to its total liabilities.
A lot of growth has also been baked into Archer's valuations. With a market cap of $7.7 billion, it trades at nearly 18 times its projected revenue for 2027. That might seem reasonable relative to its growing backlog, but it still hasn't scaled up its business yet. Therefore, any disruptions or delays could pop those valuations and crush its stock.
Should you invest in Archer Aviation at these levels?
Archer Aviation is still a highly speculative stock. That said, I believe its strengths outweigh its weaknesses. It's establishing an early mover's advantage in the nascent eVTOL aircraft market, it's backed by big companies, its backlog is growing, and it has clear plans for the future. If you believe it can achieve its ambitious goals, then it's worth buying as it trades in the low teens. However, you also need to buckle up and brace for a lot of near-term volatility.
