Should You Buy Archer Aviation Stock for Just $10?

Archer Aviation has emerged as an exciting name at the intersection of aviation and electric vehicles

When it comes to the electric vehicle (EV) market, most investors bably don't look past companies such as Tesla or Rivian Automotive

While both of these companies have built strong brands in the car landscape, there are other opportunities beginning to emerge within the broader EV realm

One of the more areas includes electric vertical takeoff and landing (eVTOL) aircrafts, such as those built by Archer Aviation (ACHR 3

Archer is looking to disrupt the aviation industry through its futuristic electric air taxis

From offering a new form of mobility in densely populated environments such as cities to introducing new stealth aircraft for the military, Archer has no shortage of interesting use cases

Among its fans is investor Cathie Wood

Archer Aviation is an exciting company with a lot of potential, but

Investment bank Morgan Stanley recently published a report in which re analysts estimated the size of what the organization calls the "low altitude market. " By 2050, Morgan Stanley is forecasting the total addressable market (TAM) for low altitude aircraft to be around $9 trillion

While Morgan Stanley's re includes other types of aircraft besides eVTOLs (i. , drones) in its report, it is encouraging to see Archer's primary opportunity in air mobility is so large

When you explore Archer's potential to disrupt traditional modes of transportation while bringing much-needed innovation to the aviation industry, it's not surprising to learn that companies such as United Airlines and Stellantis have been eager to partner with the company

On top of that, Archer's recent partnership with Palantir nologies also suggests the company is exploring how software and artificial intelligence (AI) can play a role in the company's new aviation system

Image source: Getty Images

Smart investors understand reality versus narrative For now, Archer remains a pre-revenue

In other words, the company's partnerships and growing order book haven't exactly led to tangible sales coming through the door just yet

ACHR Cash and Equivalents (Quarterly) data by YCharts While the chart above might imply that Archer's cash balance is strong, the company's rising re and development (R&D) costs and burn rate could quickly diminish its liquidity position

To me, that valuation reflects an exciting hype narrative as opposed to concrete fundamentals

Is Archer Aviation stock a buy right now

Although Archer stock may look "cheap" at $10 per, the company's multibillion-dollar valuation seems overstretched considering there aren't any sales to back it up yet

In reality, Archer could be seen as analogous to a late-stage venture capital (VC) type of investment

The payoff could be enormous, but the risk file is equal (if not larger) in size

Another layer that could complicate the company's commercialization efforts revolves around regulatory apvals from the Federal Aviation Administration (FAA)

In my view, there are too many uncertainties around Archer right now

While I am hopeful that the company has the potential to disrupt the aviation world, I think in Archer stock right now is too speculative

It could be years before the company reaches critical scale and the stock price really takes flight

For these reasons, I would encourage investors to monitor Archer's gress but remain on the sidelines when it comes to buying the stock right now

Adam Spatacco has positions in Palantir nologies and Tesla

The Motley Fool has positions in and recommends Palantir nologies and Tesla

The Motley Fool recommends Stellantis

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