The company hopes short-term investor pain will precede long-term gain.
Archer Aviation (ACHR -0.44%) added some much-needed cash in August, but at the expense of existing shareholders. The news had a negative impact on the stock.
Shares of Archer lost 18.5% in August, according to data provided by S&P Global Market Intelligence, as investors adjusted to a larger share count post-offering.
Focused on the long trip ahead
Archer is one of several companies working to commercialize electric vertical takeoff and landing (eVTOL) aircraft. The company’s Midnight aircraft could one day ferry passengers over crowded rush-hour streets or bring passengers from the outer suburbs to airports, but for now the design is a work in progress.
In August, Archer announced a $107 million loss on little revenue as it works to build out its manufacturing footprint ahead of a planned 2025 launch. It also announced a new $175 million private placement from existing investors including Stellantis and United Airlines Holdings.
The funding is necessary, but it involved the sale of 49.3 million shares of Archer stock. The deal makes each existing share worth a little less, and these offerings usually cause the stock to fall at least in the near term. The hope for investors is that the added cash will make the business stronger and worth more in the years to come, offsetting the dilution.
Archer has nearly $6 billion in potential orders from customers including United and Southwest Airlines. The company is currently working with the Federal Aviation Administration (FAA) on certification, with the goal of having a product ready for commercial service by next year.
The technology is unproven but based on existing designs. There is a crowded field of competitors working to develop eVTOLs, but Archer, along with Joby Aviation, appears to be at the head of the pack.
Is Archer Aviation stock a buy?
Archer started September on a positive note. Analysts at H.C. Wainwright initiated coverage on the stock with a buy rating and a $12.50 price target, saying the company is progressing toward certification and has good partnerships in place once approval is secured.
There is a lot of potential here, and a lot that could go wrong. For those willing to focus on the long term and who can stand some turbulence along the way, Archer could be a good fit for a well-diversified portfolio. Just understand it won’t be a quick trip to profitability.
Lou Whiteman has positions in Joby Aviation. The Motley Fool recommends Southwest Airlines and Stellantis. The Motley Fool has a disclosure policy.
