Archer Aviation (NYSE:ACHR) stock has been an investor favorite over the past year, with shares up by 145%. However, since peaking in mid-May, the stock has been trading in a tight range, suggesting that investor enthusiasm has started to cool as the company faces new challenges.
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One reason for this shift in sentiment, according to top investor Richard Durant, is mounting investor weariness stemming from Archer’s slow progress in both testing and certification. Durant notes that the company is still grappling with the “difficult task of living up to extremely elevated expectations,” which has become more apparent as recent milestones have failed to impress the market.
For instance, while Archer recently celebrated its first piloted flight, Durant points out that the event was limited to a standard takeoff and landing, rather than the more ambitious vertical takeoff and transition that would showcase the full capabilities of its eVTOL aircraft.
“The reason for this isn’t really clear, but it raises questions about whether Archer’s second Midnight aircraft can actually take off vertically and perform transitions as it is currently configured,” he explains. The timing also did little to inspire confidence, with the first piloted flight occurring much later than originally planned due to instrumentation issues.
Further fueling investor skepticism, Durant highlights another recent development that fell short of expectations. Archer’s test flight in Abu Dhabi was billed as a demonstration under challenging environmental conditions – high heat, humidity, and dust – meant to showcase readiness for future commercial operations. Yet the test itself consisted of a simple vertical takeoff and hover, remotely operated rather than piloted, and was carried out using the earlier version of the Midnight aircraft, which differs significantly from the current model.
These lukewarm demonstrations reinforce Durant’s earlier argument that Archer’s lofty valuation is difficult to justify based on fundamentals. Although the company continues to tout its large order backlog and partnerships with high-profile firms like Palantir and Anduril, the tangible benefits of these relationships remain unclear, and Archer faces significant hurdles before it can translate its order book into actual value. While there is long-term potential in defense, that upside remains speculative, especially as Archer is not yet viewed as a “tech leader” in the eVTOL space.
In addition, Durant observes that Archer’s steady stream of positive announcements has lost its ability to move the stock higher. He cautions that, “meaningful progress on flight operations and FAA certification will be needed for Archer’s share price to move higher, and the fact that Archer still isn’t regularly performing piloted transition flights should be a point of concern.”
Given these considerations, Durant rates ACHR stock a Hold (i.e., Neutral). (To watch Durant’s track record, click here)
On Wall Street, 2 analysts share Durant’s cautious outlook, but with an additional 4 Buys, the stock still lands a Moderate Buy consensus rating. The $11.75 average target suggests that, a year from now, shares could be trading 12.5% higher. (See ACHR stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.