Archer Aviation (NASDAQ:ACHR) stock took a hard left today – down 14% – after the air taxi maker announced an $850 million direct stock offering priced at $10. While the fresh capital supports Archer’s aggressive growth and certification plans, the dilution clearly disrupted the stock’s momentum.
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And what momentum it’s been. Archer shares have more than tripled over the past year, lifted by a steady stream of bullish catalysts that sent investor enthusiasm soaring.
As the eVTOL pioneer pushes toward FAA Type Certification – essential for U.S. commercial operations – it’s also accelerating efforts overseas. Archer recently reaffirmed plans to launch piloted flights in Abu Dhabi by year’s end, with Ethiopian Airlines coming on board as its second customer.
Momentum also got a policy tailwind. President Trump’s new executive order establishing a pilot program for eVTOL testing marked another major step in building out the so-called Low-Altitude Economy, potentially opening the skies to commercial air taxi operations.
Yet, even with all this in play, not everyone’s convinced. One investor, known by the pseudonym Deep Value Investing, argues that the rally has outpaced reality – and believes the recent hype has gotten ahead of itself.
“It’s important to keep things in perspective and consider how big the hype really is and how soon the next key event is expected,” warns the 5-star investor.
Deep Value Investing worries that the market is not taking into account fundamentals, such as Archer’s significant lag behind industry peer Joby in the race for Type Certification. While the FAA rating matters less during this pre-revenue stage for firms in the industry, the investor believes this will become “very” relevant in the second half of next year.
Moreover, Deep Value Investing points out that the hefty cash burn of $376 million over the past twelve months could lead to further shareholder dilution – though the company’s $1 billion in cash and short-term investments at the end of Q1 shields Archer from any near-term liquidity risk.
Regarding the valuation, the market is already pricing in the Abu Dhabi launch, notes Deep Value Investing, who also doubts that the current enthusiasm will last until the Archer’s first piloted flight gets cleared for take-off later this year.
While there is nothing inherently wrong with buying the hype, this investor is more than content to stay on the sidelines.
“I don’t see enough news or announcements to sustain the share price in the double digits until year-end,” sums up Deep Value Investing, who is assigning ACHR shares a Hold (i.e. Neutral) rating. (To watch Deep Value Investing’s track record, click here)
Wall Street, on the other hand, is slightly more upbeat. With 4 Buy and 2 Hold ratings, ACHR enjoys a Moderate Buy consensus rating. Its 12-month average price target of $11.83 implies a ~16% potential upside in the coming months. (See ACHR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.