After Falling by 36%, Is Archer Aviation Stock a Buy at Around $7?

Over the last couple of years, a new pocket of the electric vehicle (EV) realm has started gaining momentum in the investment world. Known as electric vertical takeoff and landing (eVTOL) aircraft, they have sparked some excitement among technologists and EV enthusiasts.

One leading eVTOL company you may be familiar with is Archer Aviation (NYSE: ACHR). As of this writing (April 4), shares of Archer have dropped by 36% on the year and are currently trading just over $6. Is this an opportunity to buy the dip in Archer Aviation stock?

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Why might investors be excited about Archer?

While electric air taxis are not yet a mainstream method of transportation, Archer has managed to strike a number of interesting partnerships that have some investors intrigued about the company's future.

When it comes to financial backing, Archer has the support of both Stellantis and United Airlines. In addition, the company has also partnered with Southwest Airlines, Ethiopian Airlines, and many more to deploy its aircraft and help commercial airlines build fleets of eVTOLs.

Moreover, Archer has received interest in the defense sector as well -- from the U.S. military and autonomous systems developer Anduril. Lastly, the company is even deploying AI software from Palantir Technologies to help identify more efficient processes when it comes to manufacturing and scaling.

Given the multitude of applications for eVTOL in combination with Archer's global appeal, there is reason to believe that the company has an enormous addressable market that includes commercial aviation, defense contracting, and even AI.

Image source: Getty Images.

Exploring Archer's financial profile

With that said, there is more to explore about Archer before pouncing on the current dip in the company's stock price. Although shares of Archer currently hover just over $6, that doesn't tell us much about the company's actual value. Right now, Archer's market capitalization is roughly $3.7 billion. In order to figure out if this is a good deal or not, let's take a look at Archer's current financial profile.

ACHR Cash and Short Term Investments (Quarterly) data by YCharts

Over the last few years, Archer has done a respectable job maintaining a fairly disciplined approach to its cost structure. However, net losses are steepening while the company's cash balance is rising. How can that be?

Archer is a pre-revenue business, and so the company doesn't actually have any sales coming through the door yet. In order to invest in research and development (R&D), engineering, marketing, etc., the company has relied on Stellantis and other strategic investors to bridge the gap between building scale and actually achieving widespread commercialization.

Is Archer Aviation stock a good buy right now?

Investing in Archer today is similar to investing in a start-up. Venture capital firms often invest in businesses across several rounds of financing before ever seeing a return.

ACHR Revenue Estimates for Next Fiscal Year data by YCharts

As the charts above indicate, analysts that cover Archer appear optimistic that the company will begin generating significant revenue growth over the next couple of years. But until that happens, the company remains a cash-burning, high-capital-expenditure (capex) operation reliant on outside funding.

I think the prudent strategy would be to see how Archer's actual sales figures compare to the estimates above once the company begins generating revenue. It is still early days for the eVTOL market in general, so long-term investors will have plenty of opportunity to invest in Archer in the future. But at its current stage, an investment in Archer remains highly speculative, and I suspect shares will likely continue to experience outsized volatility based on the company's latest press release.

Should you invest $1,000 in Archer Aviation right now?

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Adam Spatacco has positions in Palantir Technologies. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Southwest Airlines and Stellantis. The Motley Fool has a disclosure policy.