Is Archer Aviation the Next Trillion-Dollar Stock?
Key Points
Archer Aviation wants to move travelers over congested city streets in flying taxis.
The company does not have regulatory approval to operate eVTOLs commercially, but it's still making strides toward commercialization.
It's unlikely Archer will become a trillion-dollar company, especially with competitors ahead of it in the FAA approval process.
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What if I told you there was a multi-trillion-dollar opportunity in aviation, one still in the early stages of growth, but could radically change the industry? If you're already familiar with Archer Aviation (NYSE: ACHR), then you probably know where I'm going with this.
Archer is developing electric vertical takeoff and landing (eVTOL) aircraft, better known as air taxis, that could eventually move passengers above congested city streets. Because time is money, and money buys convenience, Archer is betting that travelers will pay a premium to be shuttled over traffic. If Archer is right, its market valuation -- currently badly beaten down -- could grow several figures higher than its current $3.75 billion.
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As this nascent industry grows, could Archer become a trillion-dollar company?
How Archer could grow, and what could stop it
There's no denying that Archer Aviation has momentum right now. Well, let me take that back: It did have momentum, lots of it, so much so that the company continues to ride the last bit of it even though delays and stock dilution have brushed the dazzle out of investors' eyes.
Image source: Archer Aviation.
The good news is that Archer may lack the FAA type certification it needs to fly passengers commercially, but that hasn't stopped it from putting its flagship eVTOL, Midnight, through the wringer and laying the groundwork for eventual commercial operations.
In September, Archer announced that Midnight completed a piloted round trip between Salinas and Hollister, California. Midnight reached 125 mph, cruised at 3,550 feet, covered more than 40 miles round trip, and completed each leg in 12 minutes. Better yet, the flight was conducted as part of Archer's No Roads tour, which is being closely coordinated with the FAA.
That's great news for Archer investors, but it's not revenue -- and for this cash-burning company, generating significant revenue from eVTOLs is a must right now. Archer will likely spend a good chunk of its roughly $1.6 billion in cash and equivalents on research and development. You might think a billion would last a while, but with a quarterly burn rate of $200 million, I'd be surprised if it lasted 24 months before it needs a fresh injection.
ACHR Cash and Short Term Investments (Quarterly) data by YCharts
Archer might be getting significant revenue through Insitu, a profitable drone manufacturer that it plans to acquire from Boeing. Still, eVTOLs are its bread and butter, and until it has revenue through that segment, the uncertainty around its future will be unbearable for most investors.
Does Archer really have what it takes to become a trillion-dollar company?
Never say never -- so the saying goes -- but then again, hope is not a strategy, you shouldn't count your chickens before they hatch, and some things really are too good to be true.
All in all, I think conventional wisdom is stacked up against Archer's trillion-dollar growth scenario. Not because growing into a trillion-dollar company is impossible, but because the world in which a company like Archer could join the trillion-dollar club barely exists today. Plus, Archer isn't the only eVTOL company competing in this space -- there's also Joby Aviation, which is further along on the FAA certification timeline.
At this point, Archer Aviation might be good for a small speculative position, but I wouldn't go all in. There are plenty of growth stocks in better positions than this one to offer you handsome gains over the long term.
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Steven Porrello has positions in Archer Aviation and Joby Aviation. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.
