Electric aircraft maker Archer Aviation (NYSE: ACHR) has seen some big ups and downs. Similar to Tesla (NASDAQ: TSLA), investors are fascinated by its innovation with electric vehicles and think its future air taxis have the potential to be a leader in the sky.
In September 2021, Archer Aviation went public through a special purpose acquisition company (SPAC), otherwise known as a blank check company.
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If you’d invested $1,000 when Archer Aviation began trading, you’d have just $425 today. Here’s why.
SPACs were all the rage in 2020 and 2021, due largely to easy money in the Fed’s zero-interest rate environment. It was a risk-on environment, and investors were looking to put money to work. SPACs took many companies to the public markets early, sometimes at astronomical valuations. But later, SPAC shares could flood the market after lock-up provisions expired, causing big share-price declines.
One of these companies was Archer Aviation, as you can see below. Valuations also suffered once inflation jumped and the Fed jacked up interest rates quickly. That’s how an initial $1,000 investment in Archer Aviation got to be worth only $425 today.
I largely believe there are no bad assets, just bad prices. That’s what happened with most SPACs, including Archer Aviation, which I view as a compelling stock today.
Archer Aviation has made significant progress through required regulatory work that could allow it to put its electric aircraft into commercial use. The company thinks its Midnight air taxis could take flight in New York City and Chicago starting next year. Archer Aviation is only the second air taxi to receive final airworthiness criteria from the Federal Aviation Administration and has already completed 400 test flights.
This kind of lead over competitors could result in a dominant market share of the sky one day. There will undoubtedly be risk with a company this early and wading into unknown waters, but I like the risk-reward proposition here.
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