Many analysts believe that Archer Aviation, whose stock price has dipped following their SPAC merger, has the potential to show huge growth, but investors must be willing to wait a few years for the big returns.
Archer Aviation operates an urban air mobility company, engages in designs, manufactures, and operates electric vertical take-off and landing aircraft to carry passengers, and it is aiming to revolutionize short-mid distance travel for the wealthy.
Matthew Bennett, Senior Portfolio Manager at Hennessy and Associates, said “Archer trades at a discounted value compared to their major competitors such as Joby Aviation. The stock may have struggled of late but this has led to a massive discount in retrospect to future earnings, and there could be a huge upside if all goes well over the next few years.”
Currently, Archer Aviation trades at a forward EV to revenue ratio of 0.3x 2026 projected earnings, its market cap, $1 Billion, is much lower than peers such as Joby Aviation (JOBY), $3.5 Billion and Vertical Aerospace (EVTL), $1.9 Billion, which would indicate that the stock is trading at a ~100%+ discounted value in comparison to its competitors.
“Archer’s value, which is valued at a discount at the moment, is likely due to the fact that the company has not yet proven itself, and revenue is not expected for some time. Forward flight tests will be crucial to the company’s ongoing success, as well as its ability to continue to raise the necessary money for scale,” continued Matthew Bennett, Senior Portfolio Manager at Hennessy and Associates.
The key catalysts will be future deals and positive testing results as the industry becomes more and more competitive, but, overall, this company presents an enticing medium risk -high reward investment going forward. It is believed by many analysts that Archer Aviation will grow rapidly once shipments begin in about 3-5 years, which again points to a discounted valuation in comparison to other highly valued growth companies in the EV sector.
The company has around $800 million in cash from the SPAC merger with ACIC, so its debt does not look to be a huge issue, but should be monitored as always as only a few unsuccessful flight tests could spell disaster. This could be a huge trade for investors willing to be patient, since the company has the potential to be a top 3 leader in what could be a trillion-dollar industry in the near future. However, there is still a good amount of downside risk, and this risk should therefore be taken into account when weighing risk-reward strategies.
The stock is definitely a long-term investment, and entry prices may never be better than current levels.