The second half of 2024 was a strong period for speculative high-growth stocks. Like dozens of these companies, Sagittarius Aviation (NYSE: ACHR) has risen more than 100% in the past month, with the stock boost occurring around the US presidential election. Archer Aviation is an air taxi company that wants to build a network in several wealthy cities around the world with its point-to-point strategy.
Is Archer Aviation stock a buy, sell or hold asset for investors today? Let’s take a look at this growing air taxi startup and find out.
Do you miss the morning spoon? Breakfast news delivers it all in one fast, silly and free daily newsletter. Register for free »
Archer Aviation is building a fleet of electric vertical take-off and landing taxis, also known as eVTOL. They resemble helicopters, but are slightly different and less noisy, which should allow them to operate more in cities. Management aims to address high-traffic routes that take about an hour to drive, such as from downtown Manhattan to the airport. In the proposed route, a trip from the south side of Manhattan to Newark Airport takes just nine minutes. Customer value comes from the exclusive service and time savings, which rich people will pay a pretty penny for.
Due to the long regulatory process, Archer Aviation is currently inactive. By 2025, it plans to produce about two planes per month and (hopefully) start operations in New York, Tokyo and Abu Dhabi. The order book is large, estimated at over $6 billion, demonstrating the commercial demand for eVTOL taxis if the technology and infrastructure can work properly.
Once the test routes start working, there is an almost endless growth path for Archer Aviation to go after. There is no city in the world that does not face traffic problems, with more and more routes that can be added to the point-to-point network in major urban areas. It will be a long journey, but this disruptive new mode of transportation could become a major problem over the next decade, at least in select cities around the world.
Potential is a word that should be associated with Archer Aviation. Don’t think this is a slam-dunk guarantee just yet. Archer Aviation has never generated revenue and is still undergoing regulatory approval by the Federal Aviation Association (FAA). Sure, the company will generate a lot of revenue when its taxi network becomes operational, but that hasn’t happened yet.
The financial statements are quite ugly because they are before earnings. Free cash flow was negative $415 million over the last twelve months and has only gotten worse since Archer Aviation went public two years ago. Cash burn is likely to get worse as the company expands its inventory of eVTOL vehicles, which will require a lot of upfront capital to build. Even if the taxi network becomes operational in a few cities, Archer Aviation will still lose money. Even with 100 point-to-point networks generating $100 per hour in revenue 24/7, 365 days a year, that amounts to only $87.6 million in annual revenue, or well below the current cost base. This scenario will also not occur again in the coming years.
