Archer Aviation Inc.’s ACHR shares plunged a dismal 50.5% in the year-to-date period, underperforming the Zacks Aerospace-Defense industry’s loss of 3.5% as well as the broader Zacks Aerospace sector’s gain of 3.7%. It also came short of the S&P 500’s return of 19.9% in the same time frame.
With Archer Aviation continuing to incur operating loss while still in the pre-revenue generation stage, investors may feel wary of the stock.
ACHR YTD Performance
Image Source: Zacks Investment Research
On the contrary, a stellar performance can be seen in the share price return of other industry players like Embraer ERJ, RTX Corp. RTX and L3Harris Technologies LHX, which have witnessed a surge of 98.5%, 42.6% and 11.4%, respectively, in the year-to-date period.
Now this might dissuade investors from further investing in ACHR or even encourage them to divest this stock from their portfolio. However, before making any hasty decision, let’s delve into what led to the company’s dismal year-to-date performance and whether there is any room for its growth in the near future, including risks (if any).
What Led to ACHR Stock’s Downfall?
As Archer Aviation continues to design, develop and seek the governmental approvals necessary for its Midnight electric vertical takeoff and landing (eVTOL) aircraft to enter into service, the company has not generated revenues yet. It has been incurring significantly increasing operating expenses as it progresses toward the certification, manufacturing and successful delivery of its eVTOL jets. This, as a result, has been causing ACHR to incur significant operating losses in recent quarters, which might have been a primary cause for investors losing their confidence in this stock lately.
The company’s cash flows from operating activities have also been reflecting dismal performance in the past couple of quarters as ACHR continues to make cash investments for supporting the growth of its research and development activities related to its eVTOL aircraft, as well as the general and administrative functions necessary to support such activities.
Will ACHR Stock Recover Anytime Soon?
Once Archer Aviation starts delivering its eVTOL aircraft to its customers, we may expect the company to make notable revenue generation. In August 2024, the company delivered its first Midnight aircraft to the U.S. Air Force. This delivery should be reflected in the form of positive revenue generation in ACHR’s third-quarter 2024 results.
A quick sneak peek at ACHR’s earnings and sales estimates reflects the same.
ACHR’s Upbeat Estimates
The Zacks Consensus Estimates for ACHR’s third-quarter and full-year 2024 sales reflects a positive revenue generation, and the same for 2025 sales indicates a massive year-over-year improvement.
A similar improving trend can be witnessed in the near-term and 2025 bottom-line estimates as well.
Image Source: Zacks Investment Research
Long Run Prospects Seem Shaky
Despite offering some solid near-term prospects, it’s uncertain whether ACHR can sustain growth in the long run. The company is currently working to certify its Midnight jet with the Federal Aviation Administration (“FAA”) so that it can deliver commercial service soon.
However, aerospace manufacturers like ACHR are currently facing several industry challenges like supply- chain issues, rising jet fuel prices and shortage of skilled labor. One should consider the fact that ACHR might face delay in completing its aforementioned work. Any significant delay in obtaining FAA certification will likely require the company to raise additional capital above its existing cash on hand. This, in turn, might also delay its generation of revenues.
The market for eVTOL aircraft is still in a nascent stage. Hence, ACHR’s success in this market doesn’t just depend upon its ability to effectively design, develop and certify eVTOL aircraft, but also on how the demand for eVOTL evolves with time. If the majority of the public does not recognize unmanned aircraft as an alternative to existing methods of public transport, as a result of concerns regarding safety, noise and affordability, the growth potential for ACHR will remain limited over the long run.
What Should be Your Take?
To summarize, investors interested in Archer Aviation should wait for a better entry point, considering the fact that the company is yet to generate positive revenues. Also, ACHR currently has a VGM score of F, which is not a favorable indicator of strong performance.
However, those who already own this Zacks Rank #3 (Hold) company may stay invested as the company's upbeat estimates offer near-term prospects.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
