Shares of Archer Aviation (NYSE: ACHR) have risen nearly 40% over the past month, as of this writing. Almost all of that advance has come in just the few days following the company's third-quarter 2024 earnings release.
It was a good earnings update in many ways, but investors should go in here cognizant of the risks that still exist for Archer and its shareholders.
Archer's update was full of positives
From a big-picture perspective, the company's goals are incredibly ambitious. First it is looking to create a new style of aircraft, an electric vertical takeoff and landing (eVTOL) short-haul plane. And it wants to use that plane to create an entirely new transportation business, air taxis.
It isn't the only company working on such a project, but it is, impressively, getting closer and closer to both goals. This was highlighted in the third-quarter report.
Image source: Getty Images.
Archer Aviation's leading bullet points in its earnings news release tell a compelling story.
- Its factory is set for completion in the coming weeks, with the aim to be building piloted aircraft for testing and early commercial deployment by 2025.
- It said it's nearing completion of phase 3 of the Federal Aviation Administration (FAA) certification process while continuing to rapidly advance phase 4, the last step to secure certification.
- Management also reported that it established a consortium led by the Abu Dhabi Investment Office to launch commercial air taxi services in the United Arab Emirates as early as the fourth quarter of 2025.
- Lastly, it entered into a partnership with Soracle -- a joint venture between Japan Airlines and the Japanese manufacturer Sumitomo -- with a planned order of up to $500 million. That brought the total value of the orders that customers have indicated their interest in making to $6 billion.
Companies generally accentuate the positives and play down the negatives in these reports, but it really does look like Archer is getting close to the finish line, which helps explain the stock's rapid ascent following the earnings release.
Being a millionaire maker requires more than one good update
The problem is that all of this good news is still just leading up to the point when the company has a product to build and sell. It isn't there yet, even though it is getting closer.
The good news is wonderful, but there's still a lot that needs to go right before the upstart airplane maker is a sustainably profitable business. Inverting the script on the bullet points above is likely to be a helpful warning.
For example, the factory is almost complete, but there's more money to be spent before it is. Then it needs to work through the kinks that are common when a factory opens.
And even if everything goes as planned, it will only be producing planes for testing purposes at first. It is a foundational investment, but opening up that factory isn't the end game.
Then there are the phase 3 and phase 4 FAA approval processes. It's progressing with this effort, but until it is done, there's more money and time to spend on something that may still, in the end, not get final approval. Sure, from what Archer Aviation is saying, it seems like approval will happen, but there's always a risk that it may not.
The consortium with the UAE and the deal with Soracle both speak to the market that could await Archer Aviation, including a backlog that's as large as $6 billion. This indicates what the future might look like if Archer's plane gets approved, tested, and adopted for its intended purpose as an air taxi.
But all of those dominos need to line up, including the fact that the general public has to embrace the idea of air taxis, which currently don't exist. In other words, the market the company is targeting may not end up being large enough to support the business over the long term.
Archer Aviation is an aggressive investment
Could Archer Aviation mint some millionaires out of aggressive growth investors? Sure, if everything works out according to plan.
But there are a lot of moving parts here, and this stock is probably not one that conservative investors should be looking at until the company has reached a few more milestones. So you need a very positive view of the company and its long-term prospects if you are going to buy Archer Aviation.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
