Is Archer Aviation Stock a Buy Below $9?

Electric vertical takeoff taxis (eVTOLs) are a potentially disruptive technology on the verge of going commercial. Many publicly traded stocks are vying to win this race and bring eVTOLs to the masses, including Archer Aviation (NYSE: ACHR). The start-up has built up a sizable backlog, has begun manufacturing vehicles for regulatory certification, and has a new partnership for the defense sector.

Today, Archer Aviation trades at a cheap-looking price below $9 a share. It is aiming to get its vehicles flying by the end of 2025 with the hopes of disrupting the transportation sector and alleviating traffic in major cities. Does that mean you should you buy the stock today?

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Big order book, disruptive technology

The eVTOL products from Archer Aviation promise to reduce traffic and travel times through key corridors in major cities. The air taxis -- which carry four people and are operated by a pilot -- will travel from point-to-point terminals similar to a helicopter but with much less noisy operations. For example, the company plans to fly a route from downtown Manhattan to the Newark Airport, which would cut travel time from around an hour to under 10 minutes.

This valuable technology has many partners coming to the table to place orders for Archer Aviation's Midnight vehicle, costing around $5 million apiece. Archer Aviation now has a backlog of around $6 billion, which are commitments from customers to purchase these vehicles. Globally, many cities are lining up to use these products, with Abu Dhabi being the first city planning to try out the service.

Archer Aviation has some potentially disruptive technology, but it is still in the early days of manufacturing. It plans to build 10 Midnight aircraft in 2025 at its Georgia facility, most of which will likely be for testing and certifications with the Federal Aviation Administration (FAA). The company still needs full regulatory approval to operate its eVTOLs (or have other companies operate them) in the United States, which it hopes to have by the end of this year.

Image source: Getty Images.

No revenue, rising share count

Since it hasn't sold its product to customers yet, Archer Aviation generates zero revenue at the moment. If it sold all 10 of the aircraft produced in 2025, it would have a measly $50 million in revenue at a $5 million-per-vehicle selling price, which is tiny compared to its market cap of $5 billion. The company is burning $451 million in free cash flow a year, which is going to eat rapidly into its cash and liquidity position that totals around $1 billion.

In order to keep the party going, Archer Aviation has had to raise funds consistently. Share count is up 125% in the last few years, which will dilute shareholders and be a headwind to shareholder returns, although it has a clean balance sheet when it comes to debt obligations. In order to scale up manufacturing, Archer Aviation will likely need to burn more cash as it builds inventory to sell to customers. It will likely be many, many years before the company is generating positive free cash flow.

ACHR Free Cash Flow data by YCharts

Disruption doesn't equal a good stock

A company like Archer Aviation makes a lot of promises, which can sound exciting to a potential shareholder. It has a $6 billion backlog and deals with governments around the world. However, this does not mean it is a good stock to buy. Far from it.

Archer Aviation has never proven its products can work. It is still waiting for regulatory approval to operate in cities, yet those operations could pose a huge danger with tons of new heavy aircraft flying low in the skies over major population centers.

Cash burn is high and will likely stay high for many years. Even if it starts selling 1,000 vehicles a year and generates $5 billion in revenue, that would likely only equal a small profit well below $1 billion given the slim margins of manufacturing, and this is an unlikely scenario. There is only so much room for air taxis to be flying around cities, if they ever get approved at all.

It does have a new defense contract partnership with Anduril, which could be lucrative but will not be large enough to be meaningful to the business anytime soon. At a market capitalization of $5 billion, Archer Aviation stock is getting way too far ahead of itself and the potential risks that come with eVTOLs. This is a risky stock to buy that could lose investors a lot of money, with very little upside.

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Brett Schafer 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.