Archer Aviation, an overvalued flying-car firm
Flying-car company Archer Aviation's plans have yet to get off the ground, and the group is bleeding cash. What should investors do?
Archer Aviation (Nasdaq: ACHR) is a company that focuses on advanced aircraft, particularly a category described as eVTOL (electrical vertical take-off and landing). These light aircraft offer the promise of being able to take off and land without a runway, but in a much more efficient, cost-effective and environmentally friendly manner than helicopters. This would enable them to overcome two major problems with helicopters: expense and noise.
Other technology companies ranging from SpaceX to Anthropic have floated on the stock market at valuations of hundreds of billions – or even trillions – of dollars. Excitement over technology stocks is at fever pitch. However, the ascendancy of these high-profile names shouldn't obscure the fact that the market has already started to sour on some technology firms with bold visions of the future. Archer Aviation is a case in point.
Archer Aviation wants to make flying taxis
Archer's idea is that eVTOL aircraft could allow people to avoid congested urban streets and motorways, particularly in the US, for trips that are too short for planes. Some argue that using these “flying cars” could even become the equivalent of calling a taxi for those who want a greater degree of speed and convenience, but can't afford to charter a conventional aircraft. However, as with any eye-catching technology, bridging the gap between hype and reality is proving to be a major challenge.
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For example, even though the US government has tried to accelerate the regulatory process, getting the aircraft approved for use in US airspace will still take several years. Next, Archer Aviation needs to find a way to manufacture them at scale and at a reasonable cost, and then convince people to buy them. All the evidence suggests that despite some limited successful test flights, Archer Aviation is a long way from completing any of those steps, especially compared with rival firms in the area such as Beta Technologies. There are also wider concerns around how eVTOLs will be able to fit safely into airspace used by planes, helicopters and drones.
With no profits in sight, here's how to short Archer Aviation
Perhaps the most compelling argument against Archer Aviation is the fact that it burning through large sums of money. It lost $618 million last year. The board admits that it expects to lose up to $200 million next quarter alone. The company has enough cash to sustain these losses in the short run, but analysts expect steep losses to continue throughout the next few years, with no route to profitability in sight. The stock's valuation is nonetheless so high that even if Archer's revenue takes off, it will still be valued at around 30 times expected 2027 sales.
Investors also seem to have soured on Archer. Despite a brief resurgence in the spring, the stock is on a downward trajectory. It has lost almost two-thirds from its 52-week peak, and trades well below its 50-day and 200-day moving averages. I would therefore suggest shorting it at the current price of $5.73 at £300 per $1. I would cover the position if it hit $8.73, which gives you a total downside of £900.
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