Should You Buy Archer Aviation While It's Below $10?

Ultimately, Archer Aviation must build its aircraft, gain approval to fly it, and then successfully sell it. These updates show that all of this is moving in the right direction.

These updates give investors hope that Archer Aviation will eventually graduate from a pre-revenue company with an idea to an actual revenue-generating business. However, there’s still a lot investors don’t know.

Unfortunately, Archer Aviation is far from the only company racing to bring eVTOL aircraft to the skies. Joby Aviation is a similar company that’s already completed a demo ride in New York City. There will also be competition from aviation powerhouses Boeing and Airbus.

Archer Aviation’s $6 billion order book sounds impressive, but the company notes that these orders are conditional, which means they could fall through if something goes wrong. Plus, it’s unclear how much capital the company needs before it can sustain itself with cash flow.

In other words, investors may face dilution over the coming years while management issues shares to raise funds as needed. It recently asked Stellantis, which has previously invested in Archer Aviation, for up to $400 million in additional capital to help it fund production.

If that wasn’t enough, it’s unclear what Archer Aviation’s profits, market share, or long-term growth rates will look like. These variables all matter to a stock’s valuation.

Archer Aviation’s market cap is about $2.5 billion at its current price, and at $10 per share, it would be over $4 billion. Analysts currently have the company generating around $1.1 billion in revenue in 2028, so investors must be careful not to unknowingly pay too high a valuation because they had unrealistic expectations.

The stock may not support a high price-to-sales (P/S) ratio over the long term. Airlines and automotive companies trade at low P/S ratios due to competition, low margins, and high capital expenditures. If Archer Aviation proves similar, the stock may already be pricing in revenue growth into the 2030s, especially if shares keep heading toward $10 and that $4 billion market cap. Therefore, investors may want to stay patient and avoid chasing a stock that has doubled in just a few weeks.

Remember, Archer Aviation’s business may take years to establish itself. It’s a high beta stock, which means it’s volatile. There will probably be pullbacks along the way. Investors wanting to own Archer Aviation should dollar-cost average into shares, limit Archer Aviation to a small percentage of a diversified portfolio, and look for better buying opportunities when the stock market inevitably declines.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

Should You Buy Archer Aviation While It’s Below $10? was originally published by The Motley Fool