Down 23%, Is It Finally Time to Buy Archer Aviation Stock?

For growth investors, there is nothing better than a small company that could disrupt a huge industry. And Archer Aviation (NYSE: ACHR) fits the bill with its market cap of just $4.8 billion and plans to pioneer electric vertical takeoff and landing vehicles (eVTOLs) -- an industry that analysts at Morgan Stanley believe could be worth $1.5 trillion by 2040.

That said, the stock's performance has been lackluster so far in 2026 -- declining roughly 22% year to date. Let's dig deeper to decide if this dip is a long-term buying opportunity or a sign to avoid the company.

Image source: Getty Images.

The next big transportation trend?

eVTOLs are exciting because of their clear potential for real-world utility in the short-haul transportation market. These small electric helicopters are designed to fly over traffic in dense urban locations, potentially replacing land-based taxis for crucial routes such as between airports and city centers. They are also more environmentally friendly than traditional helicopters because they don't produce tailpipe emissions.

eVTOLs are yet to enjoy large-scale commercial operation. Nevertheless, the industry is highly competitive, with dozens of start-ups tackling the opportunity across the U.S., the EU, and China. Archer Aviation aims to set itself apart with its unique business model.

Instead of strictly focusing on manufacturing eVTOLs, it also plans to launch an air taxi service of its own. This strategy could give Archer Aviation the typical benefits of vertical integration, such as greater operational efficiency, while also expanding revenue opportunities and unlocking economies of scale by spreading fixed production costs across units used internally and those sold to third parties.

And instead of figuring out its manufacturing from scratch, the company has teamed up with global automotive giant Stellantis to take advantage of its expertise in large-scale production and supply chains. The two companies have worked together to create a 400,000-square-foot facility (called ARC) in Georgia, with the goal of producing 650 units of Archer Aviation's flagship Midnight eVTOL aircraft annually by 2030.

Turning an idea into a sustainable business

On the surface, Archer Aviation's business model sounds fantastic, but a great idea won't always translate to near-term commercial success. The company's recent earnings highlight some of these challenges.

Fourth-quarter sales were just $300,000 (up from zero in the prior year period), which is abnormally low for a publicly traded company. This sum mainly came from early-stage partnership agreements instead of recurring operating revenue, which is understandable considering that its Midnight eVTOL hasn't secured the approvals from the Federal Aviation Administration (FAA) necessary for commercial use.

However, operating losses reached almost to $234.4 million as the company continued to pour more cash into research and development to meet the government's strict testing requirements.

With just over $1 billion in cash and equivalents on its balance sheet, Archer Aviation will probably rely on continued equity dilution (issuing and selling more stock shares) to fund its operations. And while this is arguably safer than taking on high-interest debt, it isn't free money because it dilutes current investors' ownership stake in the company and their claim on future earnings. This can cause shares to underperform.

Is Archer Aviation a buy?

Archer Aviation's buy thesis depends on how quickly it can turn its great idea into a viable business. Management believes the company can deliver piloted flights later this year and provide bona fide air taxi services during the 2028 Olympic Games. But while this sounds encouraging, it might be outside management's direct control because it depends on the FAA approval process, and government agencies are not known for rushing.

Meanwhile, investors should expect Archer Aviation to continue diluting shareholders for the next few years. And even though it looks like a long-term winner, there doesn't seem to be any reason to rush to buy shares now instead of waiting for the price to potentially drop further.

Will Ebiefung 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.