The back half of 2024 has been a strong period for speculative high-growth stocks. Like dozens of these companies, Archer Aviation (NYSE: ACHR) is up over 100% in the past month, with its stock boost happening right around the United States presidential election. Archer Aviation is an air taxi company looking to build a network in multiple wealthy cities around the globe with its point-to-point strategy.
Is Archer Aviation stock a buy, sell, or hold for investors today? Let’s take a look into this soaring air taxi start-up and find out.
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Archer Aviation is building a fleet of electric vertical take-off and landing taxis, otherwise known as eVTOL. They are similar to helicopters, but slightly different and less noisy, which should allow them to operate more in cities. Management is aiming to tackle heavily traffic routes that take around an hour to drive, such as going from downtown Manhattan to the airport. In its proposed route, a trip from the south end of Manhattan to Newark Airport will take only nine minutes. Customer value comes from the exclusive service and time saved, which wealthy people will pay a pretty penny for.
Due to the long regulatory journey, Archer Aviation is not operating today. In 2025, it plans to produce around two aircraft per month and (hopefully) commence operations in New York, Tokyo, and Abu Dhabi. Its order book is large, estimated to be over $6 billion, which shows the commercial demand for eVTOL taxis if the technology and infrastructure can work correctly.
Once the test routes start working, there is a near-endless growth runway for Archer Aviation to go after. There isn’t a city around the world that doesn’t deal with traffic issues, with more and more routes that can be added to its point-to-point network in major urban areas. It will be a long journey, but this disruptive new mode of transportation could become a big deal over the next decade, at least in a select few cities around the globe.
Potential is a word that should be associated with Archer Aviation. Don’t think this is a slam-dunk guarantee yet. Archer Aviation has never generated sales and is still undergoing regulatory approval with the Federal Aviation Association (FAA). Sure, the company will generate a lot of sales when its taxi network starts operating, but that has not happened yet.
Its financial statements are fairly ugly as a result of being pre-revenue. Free cash flow was negative $415 million over the last 12 months and has only gotten worse since Archer Aviation went public two years ago. Cash burn will likely get worse as it builds out its inventory of eVTOL vehicles, which will take a lot of upfront capital to build. Even if the taxi network starts operating in a few cities, Archer Aviation will still be losing money. Even if it gets to 100 point-to-point networks generating $100 an hour in revenue 24/7 and 365 days a year, that equates to just $87.6 million in annual revenue, or well below its current expense base. This scenario will not occur for many years, either.
