Why Archer Aviation Rallied This Week

Shares of electric flying taxi company Archer Aviation (NYSE: ACHR) rallied a whopping 40.6% this week through Thursday trading, according to data from S&P Global Market Intelligence.

Archer is an electric vertical takeoff and landing (eVTOL) taxi company that is pre-revenue, and was a darling of the pandemic bubble. Shares have seen been severely beaten-down, and were recently down about 80% below their highs reached shortly after their public debut in September 2021, when Archer went public via a special purpose acquisition company (SPAC).

However, Archer and rival Joby Aviation rallied hard this week after an analyst painted a rosy picture for these two eVTOL stocks.

Needham & Co. peers into the future

On Tuesday, Needham & Co. analyst Chris Pierce launched coverage on both Archer and Joby, giving both buy ratings, with Pierce giving Joby 30% upside and Archer 100% upside. Needless to say, that big potential upside is what propelled Archer so much higher this week off depressed levels.

Pierce's reasoning is that U.S. regulators at the Federal Aviation Administration (FAA) appear keen to promote eVTOL usage to relieve urban traffic congestion and boost U.S. competitiveness, with an eye toward commercialization in 2028. Meanwhile, Archer and Joby appear to be on track for certification in the U.S. in 2026.

With the stocks down so much, especially as interest rates have dampened appetite for unprofitable companies over the past few years, Needham's bullish initiation was a breath of fresh air.

Archer remains a speculative bet

Investors in either of these unprofitable, pre-revenue names should realize that both are speculative bets, and the stocks are likely to be quite volatile in the near term.

However, Pierce predicts both companies may be able to earn $4 billion in annual revenue by the end of the decade. After its surge, Archer trades at a $2.5 billion market cap today. That's not terribly expensive for $4 billion in revenue, depending on the company's ultimate margins. But investors should also note the time value of money, especially when the path of interest rates is highly uncertain. Moreover, Archer may need to raise more money to get to that point, potentially diluting shareholders.

So while this week was a treat for investors, caution is likely warranted.

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Billy Duberstein and/or his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.