Archer Aviation Stock: Buy, Sell, or Hold? – The Motley Fool

The second half of 2024 has been a good time for speculative high-growth stocks. Like dozens of these companies, archer aviation (ACHR 8.09%) has experienced a stock rally just around the time of the U.S. presidential election, rising more than 100% over the past month. Archer Aviation is an air taxi company looking to build a network in multiple affluent cities around the world with a point-to-point strategy.

Is Archer Aviation stock a buy, sell, or hold for investors today? Let's explore and find out about this soaring air taxi startup.

Commercialized air taxis have great potential

Archer Aviation is building a fleet of electric vertical takeoff and landing taxis, also known as eVTOLs. Although similar to helicopters, they are slightly different and less noisy, which should allow them to operate in urban areas. Management is aiming to tackle high-traffic routes that take about an hour to drive, such as from downtown Manhattan to the airport. The proposed route would take just nine minutes from the southern tip of Manhattan to Newark Airport. Customer value comes from exclusive service and time savings, and wealthy people will pay handsomely for it.

Due to lengthy regulatory procedures, Archer Aviation is currently not operating. By 2025, the company plans to produce about two planes a month and (hopefully) begin operating them in New York, Tokyo, and Abu Dhabi. The company's order book is estimated to be more than $6 billion, indicating that there will be commercial demand for eVTOL taxis if the technology and infrastructure work properly.

Once the test route is up and running, there is an almost limitless runway for growth for Archer Aviation. Major metropolitan areas are adding more routes to their point-to-point networks, and there is no city in the world that is not dealing with transportation issues. It's going to be a long journey, but this disruptive new mode of transportation could become a big deal over the next decade, at least in a few select cities around the world.

Zero income, huge loss

Possibility is a word that should be associated with Archer Aviation. Don't think this is a solid guarantee yet. Archer Aviation has never had any sales and is still receiving regulatory approval from the Federal Aviation Association (FAA). Sure, the company will generate a lot of revenue once the taxi network starts operating, but that hasn't happened yet.

The financial statements are pretty ugly because they are before earnings. Free cash flow was $415 million negative over the past 12 months, and has worsened since Archer Aviation went public two years ago. Cash burn is likely to worsen as the company builds its inventory of eVTOL vehicles, which require significant upfront capital to build. Even if the taxi network starts operating in some cities, Archer Aviation will still lose money. Even if 100 point-to-point networks were to generate revenue of $100 per hour 24/7, that would equate to only $87.6 million in annual revenue, well below the current expense base. This scenario also won't happen for many years.

ACHR free cash flow Depends on the data Y chart

So should you buy Archer Aviation stock?

There's no denying that Archer Aviation stock has crushed the market over the past few months. However, that doesn't mean things will work out for the rest of this year and into 2025. After this recent rally, I think Archer Aviation stock is a sell for investors.

As an example, this stock has a market capitalization of $3.3 billion. This is the case for a company with annual sales of $0. Second, as we calculated above, even if it operated 100 routes, Archer Aviation's taxi network revenue would still be far from clearing expense levels. The gross margins of eVTOL taxi networks are not high. Electricity costs, pilot costs, depreciation costs, etc. hurt the company's ability to generate profits.

At the end of last quarter, Archer Aviation had more than $500 million in cash on its balance sheet and plans to raise more than $400 million in new capital. At the current burn rate, it will only take about two years for the balance sheet to become depleted. The company is almost certainly not going to generate positive free cash flow in two years.

In fact, given how much money Archer Aviation is spending to get the network up and running, I doubt this business will generate positive cash flow. For this reason alone, investors should strongly consider selling Archer Aviation stock. It seems that this is no way to continue winning in the stock market in the long term.