Here's Why Archer Aviation Stock Is a Buy Before May 8

Archer Aviation (NYSE: ACHR), a maker of electric vertical take-off and landing (eVTOL) aircraft, has been a divisive stock ever since it went public by merging with a special purpose acquisition company (SPAC) in September 2021. The bulls claimed it would disrupt the helicopter industry with its electric aircraft, while the bears believed it would struggle to expand its fledgling business.

Archer's stock opened at $9.40 on its first trading day, but it sunk to an all-time low of $1.63 per share by Dec. 27, 2022. The bulls abandoned Archer after it missed its own pre-merger estimates and rising interest rates deflated its valuations.

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Image source: Archer Aviation.

But today, Archer's stock trades at about $7. It bounced back as it finally delivered its first aircraft, secured new contracts and partnerships, and benefited from the rotation toward speculative growth plays as interest rates declined.

I believe Archer's stock will remain volatile in this choppy market, but it might be worth buying before its next earnings report on May 8.

How far has Archer flown so far?

Archer's flagship eVTOL aircraft is the Midnight, which can carry one pilot and four passengers. It can travel up to 100 miles on a single charge, with a maximum speed of 150 miles per hour. It promotes its aircraft as a cheaper and greener alternative to traditional helicopters, which are also easier to land in densely populated urban areas.

Most of Archer's customers will use the Midnight for short-range air taxi services. It also plans to launch it own air taxi service, which it claims will eventually cost the same as Uber's premium UberBlack service, within the next two years.

Back in 2021, United Airlines ordered 200 of its Midnight aircraft. In 2023, Stellantis invested in Archer and said it would be the exclusive contract manufacturer of its own eVTOL aircraft. The U.S. Department of Defense (DOD) also awarded Archer with contracts worth up to $142 million that same year.

In 2024, Future Flight Global and Soracle (a joint venture between Japan Airlines and Sumimoto) ordered 116 and 100 of its aircraft, respectively. It secured a new air taxi deal with Ethiopian Airlines this March, and it intends to launch its first air taxi service in Abu Dhabi by the end of this year.

Archer also gained more attention by partnering with Palantir, a leading provider of analytics and artificial intelligence (AI) services for the U.S. government, this March. Archer will use Palantir's Foundry platform to accelerate the production of its aircraft in Georgia and Silicon Valley, and its AI platform to strengthen its own aviation systems.

But how much revenue is Archer actually generating?

Archer delivered its first Midnight aircraft to the U.S. Air Force (USAF) last August. However, that aircraft was only sent to the USAF for evaluation purposes as the first step of its DOD contract and didn't generate any direct revenue. That's why its revenue still came in at zero in 2024 as it racked up a net loss of $537 million.

But by the end of this year, Archer plans to deliver its first "revenue-generating" Midnight aircraft to Abu Dhabi Aviation. For the full year, analysts expect it to generate $29 million in revenue as it slightly narrows its net loss to $467 million.

In a presentation last year, Archer said it could produce 10 aircraft in 2025, 48 aircraft in 2026, 252 aircraft in 2027, and 650 aircraft in 2028. That's an ambitious roadmap, but its growing backlog of orders, the expansion of its first air taxi services, and healthy liquidity of more than $1 billion at the end of 2024 could drive it toward those goals. Assuming it hits those targets, analysts expect Archer's revenue to surge to $471 million in 2027 as it posts a net loss of $483 million.

Is Archer reasonably valued relative to its growth potential?

With a market cap of $3.81 billion, Archer trades at 8 times its estimated sales for 2027. Its closest competitor, Joby Aviation, is only expected to generate $190 million in revenue by 2027 -- but it trades at 25 times that estimate, with a market cap of $4.67 billion.

That might be why Archer's insiders bought more than 10 times as many shares as they sold over the past 12 months. Joby's insiders sold more than twice as many shares as they bought during the same period. So while Archer is still a highly speculative stock, it seems reasonably valued relative to Joby, its other industry peers, and its long-term growth potential.

Why is Archer worth buying before May 8?

Archer's valuations are likely being squeezed by the near-term concerns about tariffs and escalating trade wars. In its latest 10-K filing, Archer warns that it "would have significant difficulty in procuring and producing our aircraft" if tariffs keep rising.

However, the Trump administration recently paused most of those tariffs and might strike a deal with China if cooler heads prevail. If that happens, it could be a great time to buy Archer's out-of-favor stock before it posts its next earnings report.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies and Uber Technologies. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.