Archer Aviation(NYSE: ACHR), a developer of electric vertical take-off and landing (eVTOL) aircraft, went public by merging with a special purpose acquisition company (SPAC) three years ago. The combined company's stock started trading at $9.90 and soared to a record high of $17.14 in February 2021 but now trades at about $3.
Archer's stock crashed after it broadly missed its own pre-merger forecasts, racked up steeper-than-expected losses, and diluted its shares with more secondary offerings. Rising interest rates exacerbated that decline by crushing its valuations. But could this out-of-favor stock stabilize and take off again over the next three years?
Image source: Archer Aviation.
Why did Archer Aviation initially impress the bulls?
Back in 2009, an eVTOL aircraft concept video from NASA -- which showed a single-passenger aircraft hovering, taking off, and landing vertically -- went viral and inspired many companies to produce working prototypes of the futuristic vehicle.
Airbus and Boeing successfully launched their first prototype eVTOL aircraft in 2018 and 2019, respectively. Automakers like Toyota and Hyundai have also been developing their own eVTOL aircraft. However, none of those companies have actually started mass-producing these aircraft yet.
Prior to its public debut, Archer Aviation was just one of the many start-ups trying to mass-produce commercial eVTOL aircraft before those aerospace and automotive giants. However, Archer broke away from that crowded pack after United Airlines(NASDAQ: UAL) placed a long-term $1 billion order for 200 of its eVTOL aircraft in February 2021. That deal propelled Archer's stock to its all-time high during the growth and meme stock rally going on at the time.
Archer's flagship Midnight aircraft model is designed to ferry small groups of people across cities through an air taxi service. It has a maximum speed of 150 miles per hour with a range of up to 100 miles. Compared to helicopters, Midnight aircraft are generally cheaper, greener, quieter, faster, consume less fuel, and are easier to land in dense urban areas.
In 2022, United paid Archer a $10 million deposit to get access to its first 100 eVTOL aircraft. In 2023, the automaker Stellantis(NYSE: STLA) invested in Archer and selected it as its exclusive contract manufacturer for its own eVTOL aircraft. Archer also secured additional deals with the U.S. Air Force and Future Flight Global. All those partnerships indicated that Archer was still on track to commercialize its first aircraft, and it has conducted hundreds of successful test flights over the past year.
How badly did Archer Aviation disappoint its investors?
But like many SPAC-backed start-ups, Archer Aviation set the bar too high before it went public. Its pre-merger presentation claimed it would produce its first 10 eVTOL vehicles in 2024 and generate $42 million in revenue for the full year. However, Archer only delivered its first Midnight eVTOL aircraft to the U.S. Air Force this August.
For the full year, analysts expect the company to generate less than $2 million in revenue as it racks up a staggering net loss of $454 million. That's a lot of red ink compared to the $360 million in cash and equivalents and $150 million in liabilities it held on its balance sheet at the end of the second quarter of 2024.
Archer Aviation has also increased its share count by nearly 50% since its public debut, and investors should brace for even more dilution as it raises more cash to fund its long-term expansion. Management said the company plans to ramp up its production to 10 aircraft in 2025, 48 in 2026, 252 in 2027, and 650 in 2028. It also expects to establish more dedicated eVTOL air taxi routes with its partners over the next few years.
Analysts expect Archer's revenue to rise to $40 million in 2025 and $190 million in 2026 if it achieves that ambitious expansion. Based on its current enterprise value of $800 million, Archer doesn't seem terribly expensive at 4 times its 2026 sales, and its insiders bought 36 times as many shares as they sold over the past 12 months.
Where will Archer Aviation's stock be in three years?
Archer Aviation had a wobbly market debut, but its growing order book and firm support from United Airlines, Stellantis, and the U.S. Air Force could help it scale up its business. Its stock will likely go through some wild swings over the next three years, but it could also deliver some massive multibagger gains if it hits its long-term targets.
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Leo Sun has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
