Is Archer Aviation Stock a Buy Now?

Key Points

• Archer Aviation is building flying air taxis that it plans to use in cities, airports, and military operations.

• While the company remains pre-revenue, Wall Street is forecasting significant growth over the next few years.

• Archer's valuation is tough to gauge, as the eVTOL market is nascent and the company lacks true commercial peers at this time.

• 10 stocks we like better than Archer Aviation ›

Every so often, a company pursues a vision so bold that it borders on outlandish. To me, Archer Aviation (NYSE: ACHR) fits that mold.

The company is developing electric vertical takeoff and landing (eVTOL) aircraft -- more commonly known as flying air taxis. While the concept may sound futuristic -- even unnecessary to some -- Archer is targeting a real market opportunity with significant potential.

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For less than $10 a share, does Archer deserve a place in your portfolio? Let's take a closer look to find out.

What problems can Archer solve?

At its core, Archer is aiming to disrupt the low-altitude mobility market -- an opportunity that Morgan Stanley estimates could be worth as much as $9 trillion. But what exactly does this market encompass, and why are expectations sky-high (pardon the pun)?

The most immediate application is urban transportation. Congested cities often make traditional methods of public transport less efficient and more expensive. This imbalance between supply and demand frequently drives fares higher. While ridehailing platforms like Uber Technologies and Lyft have provided some relief, their pricing also spikes when driver availability is limited during peak demand periods.

Taking this use case a step further, Archer's opportunities extend well beyond city streets. The company has established a strategic partnership with United Airlines and is gaining traction with other airline carriers as well. Its aircraft can help alleviate congestion at airport hubs, as well as offer a more efficient option for short-length travel distances.

Archer also has potential in the defense sector -- an opportunity that remains largely under the radar. Thanks to its low noise profile, the company's Midnight aircraft could serve as a valuable asset in stealth operations. Moreover, eVTOLs could also play a role in logistics -- from transporting supplies to moving personnel efficiently across short distances between bases or checkpoints.

Image source: Getty Images.

Analyzing Archer's financial profile

While the opportunities outlined above may spark excitement, prudent investors are quick to ask a critical question: What does it cost to build this kind of technology?

Archer sits at the intersection of two capital-intensive industries -- batteries and aerospace. Both demand significant outlays for research, development, and manufacturing.

Based on management's prior commentary, Archer has accumulated billions of dollars in purchase orders. However, to date, Archer has operated as a pre-revenue company -- deploying substantial capital toward testing and product development.

That said, Wall Street remains bullish on the company's sales trajectory. Analysts expect Archer to begin commercializing its aircraft within the next couple of years, supported by the company's backlog. Once revenue starts flowing, Archer will cross a critical inflection point -- shifting from a proof of concept to a business with measurable financial performance.

Nevertheless, given the estimates below, it seems that it will take years for Archer to fulfill its existing order book and reach critical scale.

ACHR Revenue Estimates for Current Fiscal Year data by YCharts

Is Archer Aviation stock a good buy?

Benchmarking Archer's valuation is challenging given the nascency of the eVTOL sector. To provide some context, I compared P/S multiples of leading commercial airlines as well as ridesharing platforms. While neither cohort represents a perfect peer group, the exercise offers some directional insight.

UBER PS Ratio data by YCharts

By using Archer's 2027 revenue estimate of $417 million, the company would be trading at an implied forward price-to-sales (P/S) of about 14x today. Interestingly, the market appears to be valuing Archer at a much higher premium compared to ridehailing businesses or traditional airlines.

Ultimately, I view Archer as the definition of an asymmetric investment. The long-term upside could be significant if the company executes, but the risks are equally clear. High development costs, extended time to market, regulatory hurdles, and the challenges that come with customer adoption all pose meaningful headwinds.

For growth-oriented investors willing to tolerate volatility, Archer may warrant some speculative exposure. For most, however, the stock is probably best monitored from the sidelines until the overall business is further derisked and Archer proves that it can grow into its already-lofty valuation.

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Adam Spatacco has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Uber Technologies. The Motley Fool recommends Delta Air Lines, Lyft, and Southwest Airlines. The Motley Fool has a disclosure policy.