Last summer, electric vertical takeoff and landing aircraft stocks experienced a resurgence in popularity, and Archer Aviation (NYSE:ACHR) was no exception. ACHR stock during this time surged from under $2 per share, to prices nearing $7.50 per share.
However, as I recently discussed, excitement about eVTOL stocks has declined more recently. In the case of this early-stage name in the space, this has resulted in ACHR landing back in “penny stock territory,” or a stock price under $5 per share.
But while it may take some time for Archer to become a high-flier again, don’t assume that means you should wait until after the “mania” for such stock re-emerges.
Why? While Archer is a highly speculative investment, and caution is key, buying in at or below current prices could prove to be a very profitable long-term investment in hindsight.
ACHR Stock: Paying Up Today for a (Possible) Big Payoff Tomorrow
Based on traditional valuation metrics, Archer Aviation does not appear to be an attractive opportunity. As an early-stage, pre-revenue company, it currently generates zero revenue. Meanwhile, over the past twelve months, Archer’s net losses have totaled $457.9 million.
That’s a sizeable chunk of change relative to Archer’s current cash position ($464.6 million), as well as compared to Archer’s current market cap ($1.43 billion). I am typically skeptical of these speculative growth plays. Mainly, because these stocks are valued entirely on future potential rather than current results.
However, with ACHR stock, paying up today for a (possible) big payoff tomorrow may just well be worth it. The commercialization stage is just around the corner. As Archer discussed in its latest investor presentation, the company is now in the final phase of obtaining certification from the Federal Aviation Administration for its flagship Midnight aircraft.
Based on the subsystems and components included in the Midnight, Archer is highly confident in the aircraft having low certification risk. With the company at the same time completing its high-volume manufacturing facility, Archer is getting all the ingredients together for a major rollout starting in 2025.
Locking Down Demand in Commercial, Military, and Civilian Aircraft Markets
Sure, bringing a new product to market is one thing. Finding sufficient demand is another. However, well aware of this risk, Archer worked to lock-in demand ahead of the commercialization stage. The company found such demand, locking down a $1.5 billion aircraft sales order with United Airlines (NASDAQ:UAL) in 2021.
United plans to use the Midnight aircraft to operate an urban air mobility (aka air taxi) service in major U.S. cities. As these air taxis will offer travelers the ability to arrive at the airport from downtown in a fraction of the time, United’s rollout of this service starting in 2025 could prove very successful.
Along with securing a major commercial partner, Archer has made progress in its pursuit of demand for its products from the U.S. Federal Government. The U.S. Air Force last year entered into contracts with Archer that could be worth up to $142 million. More recently, the company entered a collaboration agreement with NASA.
While you should expect it to take years for these efforts to translate into material revenue, further progress in these areas could have a tremendous impact on the performance of ACHR stock far sooner.
Bottom Line: A Buy While Grounded
In time, Archer Aviation’s deals with United Airlines, the U.S. Air Force, and NASA could prove to be just the tip of the iceberg. As you might’ve heard before, analysts at Morgan Stanley have forecasted that the urban air mobility market could be worth $1 trillion annually by 2040.
Even if this market only scales up to a fraction of this size over the next sixteen years, this could mean tremendous growth potential for early-stage names in the space like Archer.
Still, the next big takeoff for shares could arrive far, far sooner. For instance, it may arrive as early as when the FAA (again, possibly) gives the regulatory green light for the Midnight.
With this, feel free to enter a small, speculation position in ACHR stock now. If shares really get “grounded” due to market turbulence unrelated to company developments, consider it time to hit the throttle.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
