Is Archer Aviation Stock a No-Brainer Buy While It's Trading Near $5?
Key Points
Archer Aviation is a company that hopes to be a major player in the air taxi market.
The industry is expected to grow fast, but its value still isn't expected to be all that large by the end of the decade.
Archer incurred a loss of more than $263 million last quarter, and its losses may grow in the future.
It wasn't all that long ago that Archer Aviation (NYSE:ACHR) 's stock was trading significantly higher than it is now. Last year, it hit highs of nearly $15, as there was ample excitement around electric vertical take-off and landing aircraft (eVTOL) companies.
Today, investors are a bit more cautious, as Archer is still working to obtain certification for its Midnight aircraft to begin transporting passengers. But the growth opportunities remain, and with the stock trading at around $5, its market cap is roughly $4 billion. Is the eVTOL stock worth buying right now?
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The air taxi market could take a while to take off
There's a lot of excitement around air taxis and how they might alleviate traffic in busy cities. But at the same time, there will inevitably be lots of red tape and regulations along the way, to ensure the skies don't become overly crowded, either, as planes alone can create enough challenges for air traffic controllers, let alone eVTOLs and drones.
The market is expected to grow at a fast pace, but even by the end of the decade, it won't be massive. According to data from Mordor Intelligence, the air taxi market is projected to be worth roughly $10.6 billion by 2031. And that's a significant increase from the $4.5 billion it's expected to be worth in 2026.
The big question is how large a market opportunity it will truly turn out to be. Will it just serve a niche market, or will eVTOLs be common in busy cities? The answer is by no means clear.
Archer, meanwhile, still needs to obtain approval for its Midnight aircraft, and until it does, there will be considerable risk with investing in the company, as its losses may not only continue, but they may intensify in the future. In its most recent quarter, which ended on June 30, Archer incurred a net loss of more than $263 million, up from a loss of $206 million a year ago.
Even once it commences operations, it may still not be smooth sailing, as this appears to be a capital-intensive market to operate in.
Archer's stock has plenty of upside, but also plenty of risk
There is risk and uncertainty not only with Archer itself but also in the broader industry, because regulations and red tape could significantly impact the business's long-term growth potential. Even at $5, Archer's stock is by no means a cheap buy.
This is a stock that's mainly going to appeal to growth investors with a high risk tolerance who can remain patient. For all other investors, the best option may be to take a wait-and-see approach with Archer.
David Jagielski, CPA 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.