Archer Aviation Sold Off Hard Last Month, but Momentum Is Shifting
Key Points
Archer Aviation announced a tight partnership with Boeing.
The company is working on a defense aircraft with Anduril.
Shares still look expensive for a pre-revenue business burning tons of cash.
The electric vertical takeoff and landing (eVTOL) business just took the next step. Archer Aviation (NYSE: ACHR) is seeing its stock rebound after announcing a partnership with aerospace giant Boeing. Boeing is giving Archer Aviation three of its eVTOL and drone-related subsidiaries in exchange for a stake in the business, plus stock warrants.
Archer's stock has soared off the lows on the back of this announcement, with shares up 50% in the last month. Does this momentum make the stock a buy today?
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Boeing partnership and stock rebound
Archer Aviation's stock has risen from $4.50 to almost $7 in a month due to a recently announced deal with Boeing and other defense initiatives by the eVTOL company. As a part of this deal, Archer is taking control of Wisk, Skygrid, and Insitu, which are Boeing subsidiaries working on advanced air traffic management, drones, and eVTOLs. In return, Boeing is being allocated 20% of Archer's outstanding common stock, along with warrants to purchase additional shares if Archer's share price rises.
For Archer, the company is getting some revenue on its income statement (Archer is currently close to pre-revenue for its eVTOL ambitions), as well as backing from the aerospace giant. This can help it negotiate the integration of its urban air transportation technology into the current aerospace and air travel ecosystems worldwide. Boeing in your corner pulls a lot of weight.
On top of Boeing's deal, Archer announced in July that Anduril Technologies -- the defense-contracting start-up -- will work with it to build a defense-focused eVTOL product. This focus on defense contracts has investors bullish, as the path to utilizing eVTOL and autonomous aircraft has a much more straightforward demand path in war/defense capabilities than in civilian urban areas.
Image source: Getty Images.
Is Archer Aviation a buy?
After this stock jump, Archer now has a market cap of $5.2 billion, which will be further diluted by the Boeing acquisition. It will likely need to raise more capital due to its growing losses, which will continue for years as it works through aircraft certification and ramping up manufacturing. Free cash flow was negative $615 million over the last 12 months on close to zero revenue.
Even though Boeing may help Archer grow, it is hard to value a stock that is burning so much cash today without a product approved by regulators. For now, investors should avoid taking on the risk of buying Archer Aviation shares.
Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Boeing. The Motley Fool has a disclosure policy.