With shares up by an impressive 307% over the last 12 months, Archer Aviation (NYSE: ACHR) is starting to catch the market's attention as it aims to help pioneer electric vertical takeoff and landing vehicles (eVTOLs). These are essentially electric helicopters that could revolutionize the urban transportation industry by allowing people to bypass city traffic while reducing global reliance on fossil fuels.

That said, when it comes to buying a stock, investors shouldn't get carried away by the exciting technology story. Often, a company's less glamorous fundamentals will give a better idea about how it will perform over the long haul. Let's dig deeper into Archer Aviation.

The urban air mobility opportunity

Analysts are optimistic about future transportation technologies, including urban air mobility. Morgan Stanley expect this opportunity to be worth $1.5 trillion by 2040 as battery technology improves and companies overcome regulatory hurdles. While eVTOLs will only represent a fraction of the total market, that is probably enough room for early movers to establish a long-term niche.

Archer Aviation is one of those early movers, and it sets itself apart with a unique strategy. Instead of just being an original equipment manufacturer that builds eVTOLs for other companies, it plans to also operate its own global air taxi service. This strategy could expand Archer's revenue opportunities while allowing it to customize its aircraft to be ideal for its specific operational needs -- a possible edge over future rivals.

The company is making impressive progress scaling up both aspects of its long-term strategy. On the manufacturing side, it has partnered with automotive giant Stellantis to construct a 400,000 square foot aircraft manufacturing facility in Covington, GA, where, if things go according to plan, Stellantis will use its expertise to scale up mass production of Archer's flagship Midnight eVOTL to 650 units annually by 2030.

Archer's air taxi ambitions also seem to be going according to plan. The company has begun air taxi test flights in Abu Dhabi, United Arab Emirates, alongside the country's aviation regulators (management expects commercial payments later this year). Archer has also been selected as the "Official Air Taxi Provider" of the 2028 Olympic Games in Los Angeles, which may suggest a favorable regulatory outlook in the U.S.

What are the challenges?

Image source: Getty Images.

Like many small companies pioneering new technologies, Archer Aviation has had lackluster operational results. The company has practically no revenue, but it must spend vast amounts on research and development to scale up its Midnight aircraft program. Second-quarter net losses more than doubled year over year to $206 million, and investors should expect this trend to worsen significantly before it gets better.

Even though Archer expects to receive early commercial payments later in 2025, the cost of revenue will likely exceed the revenue itself until it achieves enough production volume to benefit from economies of scale. The good news is that with $1.72 billion in cash and equivalents, Archer Aviation can sustain its cash burn for the foreseeable future.

However, eventually management will likely have to turn to equity dilution, which involves creating and selling additional shares to fund operations. Management has a track record of using this strategy, raising a whopping $850 billion in June. And while this helps the company get the funds it needs to succeed, it can hurt existing investors by reducing their stake.

Is Archer Aviation stock a buy?

With shares more than quadrupling over the last 12 months, Archer Aviation has clearly been a successful investment for many people. However, the rally was based more on speculation and hype than on fundamentals. And that means there is an elevated risk of downside.

Long-term investors should keep the stock on their watch list because of its compelling strategy in the eVTOL opportunity. But it's too early to buy.

Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.