Could Buying Archer Aviation Stock Today Set You Up for Life?

Archer Aviation (NYSE: ACHR) is a story stock. Management has, to its credit, been moving through the important early chapters and, thus, pushed the tale along in an admirable fashion. But, at the end of the day, Archer Aviation still doesn't have a product or service to sell. It's all just big ideas that might come to fruition. Here's what investors need to consider before they buy Archer Aviation, thinking that it will set them up for life.

Archer Aviation has an interesting goal

If you have ever been stuck in gridlock as you've tried to drive in and around a major city, you'll appreciate Archer Aviation's big idea. It wants to create air taxis, effectively allowing people to fly over the traffic to get to their desired destinations. At one point, that was just a pipe-dream-level idea, but with today's technology, it is very much possible.

Image source: Getty Images.

In fact, Archer Aviation already has a prototype aircraft called Midnight. It is a small, vertical-lift, electric-powered airplane. Archer Aviation is well on its way to reaching its goal. But it still needs to get Midnight fully approved. That is a process that will take a little time. It isn't enough to simply fly a plane one time; U.S. government regulators want to see it fly a lot. And in a lot of different situations. Only when regulators are confident it is safe will they give the final nod of approval.

So, there is still materially more work to be done before Midnight is a viable product. That said, the company is ramping up to be ready to start selling airplanes, assuming Midnight gets approved. That means building out manufacturing facilities and pre-selling planes so there is demand when the company is allowed to sell them. This is a costly and complex effort on both fronts, noting that Archer Aviation is working with customers from around the world.

Archer Aviation, however, is also attempting to build out its own air taxi service. On that front, it has some early approvals and could hit the ground running; it just needs a plane to use. And, of course, it will have to hire and train pilots and build the business needed to support the service.

All in, Archer Aviation is moving toward its goals, but it just isn't there yet.

ACHR data by YCharts

The big problem with Archer Aviation

The progress Archer Aviation is making is the reason for the rapid stock price advance over the past month or so. However, investors need to be careful here, because enthusiasm for a good idea could overtake the reality on the ground. That reality is, simply put, there's a lot more work to be done here. But the doubling of the stock in a month prices in a lot of good news.

What's perhaps most notable here is that this start-up company is bleeding red ink. In the third quarter of 2024, it lost $115 million. In the second quarter of the year, it lost roughly $107 million. And in the first quarter of the year, the red ink tallied up to over $116 million. Those losses are likely to continue for some time into the future.

In fact, even if Archer Aviation does end up building the airplanes and services it says it will, there's still a problem to consider. Raising cash to fund the spending could result in current investors getting diluted by cash-generating stock sales. For example, in August, it gave shares to a manufacturing partner to help pay for construction efforts and raised cash directly from another investor in exchange for shares in the company. Management is doing what needs to be done, but those two transactions amounted to around $600 million worth of shares.

A lot of risk and now less reward

Assuming Archer Aviation manages to build the products and services it says it can, there could be upside here. But big stock price advances like the one that's been seen over the past month reduce the potential for future stock gains. And since there's still no product or service to sell, there's always the chance that Archer Aviation doesn't actually achieve its goals. Or a competitor could beat it to the punch, offering a better product. And don't forget that even good ideas sometimes fall flat if the demand that was expected doesn't live up to expectations.

In other words, Archer Aviation could set investors up for life if everything goes right. But only aggressive investors should consider investing in it because there are a lot of things that could still go wrong.

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Reuben Gregg Brewer 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.