Archer Aviation (ACHR +6.38%) is one of several leading companies in a newly emerging segment of the transportation sector: urban air mobility. Urban air mobility refers to the movement of people and goods at low altitudes within metropolitan areas.
Archer is targeting multiple opportunities within this sector. The company has yet to receive regulatory approval to commence operations. However, investors remain very bullish about Archer and its long-term growth potential.
Although the company's $6.4 billion market cap may seem to already account for much of its future potential, that's not necessarily the case. Considering long-term industry growth forecasts, there is a possible path for Archer shares to eventually surge tenfold from current price levels.
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Archer Aviation at a glance
Archer Aviation specializes in the design and development of electric vertical takeoff and landing (eVTOL) aircraft. These aircraft, which function essentially like faster, quieter, and more fuel-efficient helicopters, have numerous potential commercial and military applications.
NYSE: ACHR
Key Data Points
Archer seeks to become a major air taxi provider with its flagship Midnight eVTOL. Through commercial partnerships, the company has already laid much of the groundwork for commercialization.
Namely, it has formed partnerships with various airlines worldwide, with plans to launch air taxi operations not just in major U.S. cities like New York but also in large international metropolises such as Abu Dhabi.
Again, many of these strengths are already factored into Archer's current valuation. However, while investors have factored in some of the company's long-term upside, they may still be underestimating its earnings potential at scale.
Why it still has multi-bagger potential
If you've been following the growth of urban air mobility, you've likely heard forecasts that this industry could have a total addressable market in the trillions. However, note that this figure includes potential cases beyond just passenger transportation.
Even so, based on past projections from Morgan Stanley, this could still mean an addressable market worth around $127.6 billion within the next 15 years and a trillion-dollar market within 20 years.
If early mover Archer can capture a moderately high percentage of the market, this could mean tens of billions in annual revenue. However, it's currently unclear what margins eVTOL companies could achieve at scale, given Archer's reliance on commercial partnerships and contract manufacturing.
Given that the company was largely a licensor of its technology at that point, margins could be far greater than those of aircraft manufacturers or airlines. While not certain, down the road it may well be enough to justify a valuation several times the stock's current price. Perhaps, even 10 times today's valuation.
Should you buy Archer Aviation today?
It's not far-fetched to believe that Archer Aviation could have a very bright future. However, that's not to say that the road to multi-bagger status will be a smooth one.
Volatility is likely to persist, especially as the company reaches the stage where it can self-finance its growth. While Archer currently sits on nearly $1.7 billion in cash , its high cash burn suggests further capital-raising is possible, leading to share dilution.
Still, this isn't a deal breaker, more like a reason to keep it on your watch list. Given the strong long-term potential, any near-term weakness could be an opportunity to buy the dip.
