This air taxi start-up has the potential to be a future multibagger.
The adage “Hindsight is 20-20” highlights the inherent unpredictability of buying stocks even as companies sometimes deliver life-changing returns. Investors can dream of traveling back in time to buy Tesla, which is up 13,800% since the early days of its initial public offering, or even Nvidia, which has skyrocketed 2,789% in just the past five years.
In reality, stocks with that type of performance potential are only obvious after the fact — but they can offer a road map for investors searching for the next elusive multibagger.
Archer Aviation (ACHR -4.08%) is one such start-up with a lot of promise because of its electric vertical takeoff and landing (eVTOL) air taxi service. While defying the odds to capture rapid growth and disrupt an entire industry is easier said than done, its prospects can’t be understated.
Let’s explore whether buying Archer Aviation stock could eventually help set you up for life.
The opportunity in urban air mobility
Archer has developed the piloted Midnight eVTOL, which can transport four passengers at up to 150 miles per hour. The idea is to revolutionize transportation by offering riders a fast and convenient solution to fly above traffic congestion. The company envisions a worldwide network supporting thousands of its aircraft with user pricing that eventually becomes competitive with ground taxis.
Investment bank Morgan Stanley predicts urban air mobility (UAM) will represent a $29 billion opportunity by 2030, and more than $1 trillion by 2040. By this measure, the bullish case for Archer stock is that the company captures an increasing slice of that market over the next decade, marking its transformation into an industry juggernaut.
Archer’s air taxi. Image source: Archer Aviation.
On track to take flight
Earlier this year, Archer received a registration from the Federal Aviation Administration (FAA) allowing it to operate as an airline at the corporate level. The next big step will be the final aircraft certification of the Midnight eVTOL pending the ongoing testing program with the aim to debut passenger service by next year.
Archer has secured several key partnerships with an eye on manufacturing at scale and monetization. The company is working with automaker Stellantis to build a factory capable of producing 650 Midnight aircraft annually by 2028.
The plan is to supply airlines like United Airlines and Southwest Airlines, which have signed up to use the Midnight for commercial short-range connecting flights. Archer notes its eVTOL counts on an existing order book totaling more than $6 billion in customer commitments. The company will also allow passengers to book flights directly through an aerial ride-sharing mobile app as its other core revenue stream.
Ultimately, 2025 will be a crucial year for the company to confirm the viability of its business model.
Reasons for caution
Before packing your carry-on bags with shares of Archer Aviation, several points are worth considering. Notably, the company currently generates zero revenue, reporting a net income loss of $107 million in the second quarter. While net cash on its balance sheet should cover its near-term spending needs, building out a capital-intensive global operation will likely be a financial strain for the foreseeable future.
The company has set a goal to generate $3.2 billion in annual revenue with a 20% operating margin when it reaches full production capacity by 2028. That highly ambitious and far-from-certain target at least begins to justify Archer Aviation’s current $1.1 billion market capitalization.
Any setback to the regulatory approval process could send Archer back to the drawing board. The UAM market is already fiercely competitive. Keep in mind that other eVTOL start-ups, including Joby Aviation, are moving forward with alternative technologies in this quickly evolving industry.
Even with space for multiple operators to thrive, it’s unclear if Archer will emerge as the leader and how its economics will evolve.
The big picture for investors
Multibagger stocks that end up setting investors up for life are never obvious. I believe Archer Aviation has that potential, assuming its eVTOL represents the future of transportation. While the stock remains highly speculative, the company’s ability to successfully start commercial operations with tangible financial results could be a catalyst to surprise Wall Street with a massive return.
Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia and Tesla. The Motley Fool recommends Southwest Airlines and Stellantis. The Motley Fool has a disclosure policy.