Sagittarius Aviation (NYSE: ACHR) is a story stock. It is a credit to management that it has navigated the important early chapters and moved the story forward admirably. But at the end of the day, Archer Aviation still doesn’t have a product or service to sell. These are all just big ideas that can become reality. This is what investors should consider before buying Archer Aviation because they think it will help them for life.
If you’ve ever found yourself at an impasse while trying to drive in and around a big city, you’ll appreciate Archer Aviation’s big idea. It wants to create air taxis, allowing people to effectively fly over traffic to reach their desired destination. At one point that was just a dream-level idea, but with today’s technology it’s entirely possible.
Archer Aviation even already has a prototype aircraft called Midnight. It is a small electric powered aircraft with vertical lift. Archer Aviation is well on its way to achieving its goal. But it still needs to get Midnight’s full approval. That is a process that will take some time. It’s not enough to fly an airplane just once; U.S. government regulators want it to fly a lot. And in many different situations. Only when the regulators are confident that it is safe will they give the final nod.
So there is still significantly more work to be done before Midnight is a viable product. That said, the company is working to get ready to start selling aircraft, assuming Midnight is approved. That means building out production facilities and pre-selling aircraft so that there is demand for when the company can sell them. This is a costly and complex effort on both fronts, noting that Archer Aviation works with customers from all over the world.
However, Archer Aviation is also trying to develop its own air taxi service. On that front, it has some early approvals and could take off; it just needs a plane to use. And of course it will have to hire and train pilots and build the business needed to support the service.
All in all, Archer Aviation is moving toward its goals, but it’s not there yet.
The progress Archer Aviation is making is the reason for the rapid rise in stock prices over the past month. However, investors should be careful here, as enthusiasm for a good idea can overtake the reality on the ground. That reality, simply put, is that there is much more work to be done here. But the doubling of share prices in a month brings a lot of good news.
What’s perhaps most striking here is that this startup company is bleeding red ink. In the third quarter of 2024, it lost $115 million. In the second quarter of the year, it lost about $107 million. And in the first quarter of the year, the red ink was over $116 million. These losses are likely to continue for some time into the future.
Even if Archer Aviation ends up building the planes and services it says it will build, there is still an issue to consider. Raising cash to fund expenses could result in current investors being diluted by the cash-generating stock sales. In August, for example, it gave shares to a manufacturing partner to help pay for construction work and raised money directly from another investor in exchange for shares in the company. Management is doing what needs to be done, but these two transactions represented approximately $600 million worth of stock.
Assuming Archer Aviation manages to build the products and services it says it can, there could be an upside here. But big price increases like those seen last month reduce the potential for future stock gains. And since there’s still no product or service to sell, there’s always the chance that Archer Aviation won’t actually achieve its goals. Or a competitor can beat it and offer a better product. And remember, even good ideas sometimes fail when expected demand doesn’t meet expectations.
In other words, Archer Aviation could help investors for life if all goes well. But only aggressive investors should consider investing in it as many things can still go wrong.
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Reuben Gregg Brewer has 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.
Could buying Archer Aviation shares today be a good start for life? was originally published by The Motley Fool
