Cathie Wood, CEO of Ark Invest, is known for making moonshot bets. While most money managers balance their portfolios with a healthy mix of blue chip, growth and even some speculative stocks, Wood tends to build positions in riskier opportunities.
One stock that has recently become a staple of Wood’s buying activity is Sagittarius Aviation (NYSE: ACHR)a manufacturer of electric air taxis. Between October 28 and November 13, Ark Invest bought 2.5 million Archer shares.
Nearly a month later, on December 13, Wood doubled her Archer bet, picking up a whopping 5 million shares across her ARK innovation, ARK Autonomous Technology & RoboticsAnd ARK Space exploration and innovation Exchange Traded Funds (ETFs).
With shares trading below $10, has Wood discovered a rare bargain in the electric vehicle (EV) industry? Let’s examine some developments at Archer to better assess whether this is a good opportunity to follow Wood’s lead and buy some shares.
Since Wood started ramping up Ark buying activity in Archer stock in late October, the EV player’s shares have risen 166% as of the market close on December 17.
Here are a few notable news stories about Archer over the past month, explaining why these events likely led to a rise in the share price.
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November 7: Japan Airlines and Japanese conglomerate Sumitomo recently formed a joint venture called Soracle Corporation. As part of the initiative, Soracle is working on an advanced air mobility plan to alleviate pressure on ground transport in highly congested, densely populated areas by offering electric air taxi flights as an alternative form of mobility. Soracle has selected Archer to assist in this endeavor, placing an order for 100 Archer Midnight aircraft – a deal estimated to be worth $500 million.
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November 19: Boutique investment bank Needham initiated coverage of Archer shares on November 19, placing a buy rating on the stock with an expected price target of $11.
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December 12: Earlier this month, Archer signed a major alliance with Anduril – a rising star in the development of autonomous solutions for military operations. As part of the same announcement, Archer announced that it had raised $430 million in equity funding from existing partners Stellantis And United Airlines to help finance its defense ambitions.
While each of these storylines is an exciting development for Archer, I’d say some of the potential of these deals is now being priced into Archer stock given the tremendous run over the past month. Nevertheless, with such an exciting roadmap ahead, there’s still more to explore before determining whether or not buying Archer stock is fundamentally important right now.
There is no doubt that Archer’s air taxis have generated significant interest. Personally, I am encouraged by the company’s ability to capture attention in multiple end markets, including traditional commercial applications and the US military.
But that said, it’s important to remember where Archer is in his life cycle. The company hasn’t generated any revenue yet, and until dollars come in, Archer will remain a pricey stock considering its cash burn.
Honestly, I think Wood got pretty lucky with Archer. When she bought the shares in late October, it was likely an attempt to lower Ark’s cost base, given the low share price. And while I can only speculate, I have to think that Ark’s huge purchase on December 13 was influenced by the Anduril partnership and new equity financing – giving Archer some runway and easing liquidity pressure until the company closes its operations started to commercialize. .
In many ways, I see Archer as an up-and-coming athlete who is being touted as the “next Michael Jordan” before they have even played one game at the professional level. While these comparisons make for good storytelling, there is still a lot of speculation involved. I think an investment in Archer is only for those who are comfortable with volatility, unpredictability and the unknown.
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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.
Cathie Wood just purchased 5 million shares of Archer Aviation stock. Should you follow her lead while the stock is trading below $10? was originally published by The Motley Fool
