ACHR Stock: Archer Aims for the Sky

Introduction

Archer Aviation [ACHR] is a Santa Clara-based aerospace company that is hoping to revolutionize mobility with its electric vertical take-off and landing (eVTOL) aircraft and related services. 

The eVTOL aircraft market is forecast to grow at a CAGR of 52% over the next several years, from a valuation of $1.2bn in 2023 to $23.4bn by 2030. 

This stock spotlight will look at Archer’s recent financial performance and how the company is building up its order book. It will also discuss the risks associated with being pre-revenue, and why this could make ACHR stock a risky investment. 

Major Japan Order

Archer announced in November that Soracle, a joint venture between Japan Airlines [JAPSY] and Sumitomo Corporation [SSUMY], had placed an order for 100 of Archer’s Midnight aircraft worth approximately $500m. 

The plan is to offer “electric air taxi flights in cities where existing ground transportation is constrained by traffic or geographic barriers”, according to the press release. Routes are planned for several cities, including Osaka and Tokyo. 

“Japan is widely respected for its forward-thinking approach to transportation and this investment into advanced air mobility is yet another example of that,” said Andrew Cummins, Archer’s Senior Director of Business Development.

Earlier in August, Archer secured $400m investment from Stellantis [STLA] to ramp up production of the Midnight aircraft. 

ACHR Stock Soars to 52-Week High

The Archer share price has soared 112.2% in the past month on the back of the Japan news, setting a 52-week high of $9.72 on December 2, having sunk to a 52-week low of $2.82 on September 26. 

ACHR is up 13.36% year-to-date through December 4 and up 10.48% in the past 12 months.

Investors have been buoyed by the news that Cathie Wood added 2,529,495 shares to the Ark Innovation ETF [ARKK] between October 28 and 30. At the same time, she has been selling shares in Tesla [TSLA] over the past several weeks. 

Archer and Joby’s Net Losses Widen 

Archer reported a net loss of $115.3m in Q3, significantly wider than the $51.6m loss it reported in the same period in 2023. The higher cash burn was put down to an increase in spending “to support the Midnight program, including our related testing and manufacturing capabilities”. 

The company held $501.7m in cash and equivalents at the end of the September quarter, a position “as strong as it has been over the last 18 months”, the company said in its earnings press release. 

As of September 30, fellow eVTOL firm Joby Aviation [JOBY] had a cash balance of $710m, having reported a net loss of $143.88m in Q3 compared with a slight net profit of $1.53m a year earlier. Another close competitor, EHang [EH], narrowed its Q3 net loss by 28.3% to RMB48.1m, while it ended the quarter with cash and cash equivalents of RMB1.08bn.

Source: Yahoo Finance

Archer is at a pre-revenue stage, so it is difficult to take much away from its fundamentals at present. However, the Japan Airlines deal shows the company’s commercial potential, and it had an aircraft order book in excess of $6bn at the end of Q3. 

ACHR Stock: The Investment Case 

The Bull Case for Archer

ACHR stock got a boost in mid-November when Needham initiated coverage with a ‘buy’ rating and a price target of $11, implying an upside of 58.05% from the most recent close. In a note to clients, the Needham analysts said they were confident about the future of the US eVTOL industry and praised Archer’s order book. 

The stock could also get second wind once Donald Trump takes office in January. The president-elect has previously thrown his support behind flying taxis and, reportedly, could look to reduce the Federal Aviation Authority’s red tape during his second term. This could potentially accelerate the US domestic eVTOL industry’s growth. 

The Bear Case for Archer 

While Archer’s business may seem likely to take off in the long run, the fact it is pre-revenue means that ACHR stock is an easy target for short-sellers and short-reports. Last year, Grizzly accused it of being “a lame duck” that was misleading investors on the health of its business. 

Short interest in ACHR is high, with 23.62% of the float currently being shorted, according to Yahoo Finance. In comparison, the rate is 15.98% and 13.42% for Joby and EHang, respectively. 

Short interest is likely to remain high until the company proves it can generate revenue, deliver profits regularly and reduce the cash burn rate. Until then, ACHR stock is likely to be subject to swings. 

Conclusion

The big deal with the Japan Airlines-led joint venture could help Archer to fly higher in the near term. However, while the company boasts a strong order book, ACHR stock might be a risky investment while the business continues to burn cash. 

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