Is Archer Aviation Stock a Buy Now?

Who wouldn't want a flying car?

Well, flying car ownership is still decades away for most consumers, but a flying taxi is much closer to becoming a reality thanks to Archer Aviation (NYSE: ACHR). The aviation start-up is racing to begin manufacturing an electric vertical takeoff and landing (eVTOL) aircaft, which basically resembles a giant drone, propellers and all.

While Archer's aircraft aren't yet on sale, its stock price sure was soaring in October, before making an abrupt descent this week around the release of its Q3 earnings report.

Is this exciting new technology worth buying on the dip? Here's what investors need to know.

Image source: Archer Aviation.

Why Archer Aviation stock might be worth buying...

There's been a lot of interest in eVTOL aircraft in recent months, following a June executive order by the Trump administration to accelerate a U.S. rollout of eVTOL technology under the banner of "unleashing American drone dominance."

While the technology is still relatively new, however, the concept of an air taxi has been around for decades in the form of taking a short-distance helicopter flight to avoid traffic. Archer's Midnight eVTOL aircraft would function in much the same way as a helicopter, but would use less fuel and be quieter and cheaper to operate and maintain. The company envisions it primarily being used for "urban transportation," boasting that it could cut the travel time of a trip from downtown Manhattan to Newark Airport from 62 minutes by subway to just nine minutes.

Indeed, using its small aircraft to transport passengers to board larger aircraft at a nearby airport seems to be one of the company's primary use cases. As part of Thursday's Q3 earnings report, it announced it would spend $126 million to acquire the small Hawthorne Airport in Los Angeles as a hub for air taxi operations. The company has been selected as the official air taxi provider for the 2028 Los Angeles Olympics, despite having yet to begin commercial operations.

Archer is well on its way to production, though. It secured a number of the required permits and licenses to fly over populated U.S. areas, outfitted a manufacturing facility in Georgia with help from its major backer Stellantis (NYSE: STLA), and made numerous test and public display flights. The company has also announced partnerships with Korean Air and United Airlines (NASDAQ: UAL). It expects to begin manufacturing by the end of the year and plans to start by churning out two aircraft per month in 2026. When it hits those milestones, interest in the stock seems likely to push the share price higher, at least temporarily.

...and why it might not

Archer hasn't begun production yet, so it has no real revenue to speak of. Meanwhile, the company has been spending lots of cash while it invests heavily in research and development and building out its manufacturing capacity. Yet in this frothy market, and even after its 38% share price drop, investors have still given it a premium valuation of $5.2 billion. Of course, if Archer can dominate the U.S. air taxi market, that valuation will seem cheap in retrospect. But that's a big "if."

Early investors in start-ups like Archer often reap the biggest rewards if the company takes off (no pun intended). But buying shares at this resource-intensive stage of a company's development also comes with the risk of share dilution. If the company needs to raise additional capital before it has meaningful revenue, it will likely need to issue additional shares, which would dilute the value of existing shareholders' positions. Indeed, that already happened in June when Archer sold $850 million in new shares, and it's about to happen again. The company announced another $650 million stock offering to help fund its purchase of Hawthorne Airport.

In addition to the high valuation and potential for further share dilution, the eVTOL market is full of competition. One of Archer's most prominent competitors, Joby Aviation (NYSE: JOBY), is farther along in its development process than Archer. Joby is already entering the final stage of the FAA Type Certification process and has begun producing propeller blades at its Ohio manufacturing facility.

So, while there are certainly arguments for buying Archer stock now, the steep valuation, the prospect for further share dilution, and the stiff competition it faces make it an iffy bet, even after its share price drop.

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