Should You Buy Archer Aviation Stock Below $15?

Perhaps the most remarkable aspect of long-term investing is that it allows you to appreciate innovation -- to skate to where the puck is going next. Consider the up-and-coming eVTOL (electric vertical take-off and landing) market. A report from Grand View Research estimates that the industry is just getting started, but will soar to a $28.6 billion opportunity by 2030.

Archer Aviation (NYSE: ACHR) has spent years developing eVTOL aircraft and achieving numerous regulatory milestones required for flying machines through populated airspace. Should investors buy the stock while it's below $15?

Image source: Archer Aviation.

Soon to be cleared for takeoff

Archer Aviation went public over four years ago after merging with a special-purpose acquisition company. The public markets enabled the company to raise and access more capital to fund its eVTOL development. Its product is the Midnight eVTOL aircraft, designed for short-duration flights in rapid succession.

You could think of an eVTOL as a big drone, used as an air taxi to bypass high-traffic areas on the ground. People have used helicopters for similar purposes for years, but eVTOLs are quieter, cheaper to maintain and operate, and more environmentally friendly.

Archer Aviation plans to establish an air taxi service in New York City in partnership with United Airlines. Archer Aviation is also conducting tests before launching air taxi services in Abu Dhabi, and has a contract with the United States Air Force.

Midnight has been in testing for four years. Archer Aviation is nearing the end of its regulatory journey, with six Midnight aircraft in production as part of the FAA's manufacturing process review.

Assuming no setbacks, the company could soon start to generate its first revenue. Management hopes to begin collecting payment for its first commercial efforts by year-end.

Growth will likely come slowly at first

From there, the big question will be how quickly Archer Aviation's business can take off. Growth will also depend heavily on how well Archer Aviation can build aircraft. The company completed a 400,000-square-foot facility in Georgia late last year in a partnership with Stellantis. Management anticipates that production rates will begin at approximately two aircraft per month, or 24 annually, and ramp up to 650 annually by 2030.

ACHR Revenue Estimates for Current Fiscal Year data by YCharts

Thus far, Archer Aviation has struggled to meet Wall Street's timeline. Analyst estimates currently have Archer Aviation generating revenue this year, but only $1.4 million. Estimates began the year at $50 million, so the market has had to dial back its expectations dramatically.

It's a similar story with forecasts for next year. The street currently expects $80.6 million in sales in 2026, down from initial estimates of around $200 million.

Should investors buy the stock under $15?

Investors should consider the execution risk in the stock. In other words, it's easy for Archer Aviation to state that they want to multiply their production output five years from now, but it's another thing to make it happen. Several things could derail those plans between now and then. Perhaps competition pressures sales, or an aircraft fails.

That's not to be pessimistic, but the stock already trades at a market cap of $7 billion. How much revenue does Archer Aviation need to justify that valuation? If you look at traditional airline stocks, you'll see price-to-sales ratios under 1.0 across the board.

Even if Archer Aviation achieves the profit margins to command a higher valuation, it's still unlikely to happen anytime soon. Archer Aviation's expenses will likely increase as it ramps up manufacturing output. This challenge has plagued electric vehicle manufacturers, with Tesla being the only one thus far to grow enough to turn profitable.

Unfortunately, this euphoric bull market really spoils the punch. It's a bummer because the technology seems genuinely game changing. However, as one works through the timelines and the stock's current valuation, it becomes clear that shares already reflect almost any realistic near-term business fundamentals.

Therefore, it's probably best to avoid Archer Aviation at these levels.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Tesla. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.