Prediction: Here's What a $10,000 Investment in Archer Will Be Worth in 3 Years

One year ago, Archer Aviation (NYSE: ACHR) was an eVTOL (electric vertical take-off and landing) aircraft start-up with a wild vision: flying taxis. Fast forward to now, and Archer has advanced the defense and military side of its business, which could lead to meaningful revenue. And it will likely get better from here.

Archer trades at about $6.50 a share with a market cap of roughly $5 billion. It's very possible that if Archer continues on its current path, a $10,000 investment in the stock today will reach a value between $12,000 to $15,000 by 2029. If we take dilution into account (more on that below), it would imply a return of 20% to 50% over the next three years, which could make Archer a buy for certain investors today. Let's take a closer look at the math.

Image source: Archer Aviation.

How does Archer grow 20% to 50% by 2029?

The first piece to this puzzle is revenue.

To grow up to 50% by 2029, which would put its market cap in the neighborhood of about $8 billion to $9.6 billion, after dilution is taken into account (we'll get there), Archer will need revenue, and lots of it. Last quarter (Q2), the company reported about $5 million in revenue; the quarter before, it was $1.6 million. On the surface, that's not a lot, but Wall Street is expecting extraordinary revenue growth from here.

Data by YCharts

The chart above implies a 483% compound annual growth rate (CAGR) over the next two fiscal years. If that seems unusually high, just remember Archer is basically starting from zero.

This agrees with -- or rather, doesn't disagree with -- a separate set of predictions reported by Barron's in May. Analysts, as reported in that article, expect Archer's revenue to reach $1.6 billion by 2029, while also achieving positive free cash flow. Between $511 million in 2028 and $1.6 billion the year after is a roughly 213% year-over-year growth.

Now, let's do some reverse engineering.

Let's suppose Archer stock trades between 5 and 6 times its sales in 2029. At $1.6 billion in revenue, that would give Archer a market cap in the ballpark of $8 billion to $9.6 billion, which would be up from today's roughly $5 billion market cap (this fluctuates day by day, so it might be lower or higher than that figure). That would mean Archer's market valuation would grow between 50% and 85% over the next three years.

But wait, you might object, didn't I say above that growth in Archer stock would imply a return of 20% to 50%? Yes, and that's where stock dilution comes in.

Archer currently has about 770 million Class A shares outstanding, and that number is almost certainly going to rise, especially if its recent acquisitions from Boeing close. Just for simplicity's sake, let's assume Archer has about one billion shares outstanding by 2029. If you grant me that assumption, an $8 billion to $9.6 billion market cap would translate into a share price of about $8 to $9.60, or roughly 20% to 50% above today's price.

However you slice it, Archer's growth prospects are improving. Although the company carries significant risks -- it's still lacking FAA type certification to launch its eVTOL business commercially -- risk-tolerant investors might want to consider opening or adding to a small position at today's price.

Steven Porrello has positions in Archer Aviation. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.