Can Archer Aviation Stock Fly Higher in 2024?
InvestorPlace contributor Tomas Levani recently recommended Archer Aviation (NYSE:ACHR) stock, along with two others, as the best flying stocks to own in December. There are more than three? With all the recent talk of an electric vehicle sales slowdown, it seems odd that investors would be interested in flying car companies. Yet they are, or I wouldn’t be writing about one.
According to my colleague, Archer recently secured a $142 million contract from the U.S. Air Force, including the delivery of electric vertical take-off and landing aircraft. That’s a stamp of approval from the U.S. federal government. However, I’d be hesitant to consider investing in Archer Aviation. Here’s why.
The Size of the Industry Pales
The estimated size of the flying car market was $29 billion in 2022 but should reach $422.5 million by 2029. To me, and maybe I’m wrong, this seems like a wildly ambitious growth estimate, in much the same vein as we used to see with cannabis stocks. We know how that turned out.
According to Statista, in 2023, the EV market is estimated to reach $569.3 billion in annual revenue. It’s expected to reach $907 billion by 2028. Now, that seems much more realistic than the flying car estimate for 2029.
Sure, it’s exciting to think about flying cars right out of the Jetsons, but it will be years before they become an everyday vehicle for even the wealthy. EVs, on the other hand, are 2.5 million strong on U.S. roads alone.
So, if you think investing in a pure-play EV manufacturer like Polestar Automotive (NASDAQ:PSNY) is risky, you have no business investing in Archer.
It’s a Money Loser
Between EVs and cannabis, the words “pathway to profitability” have been used way too often over the past 2-3 years. If I had a dollar for every time people in the media, myself included, uttered those words, I’d be a wealthy man.
While well-meaning, they lose meaning when the road ahead isn’t paved with gold.
As my colleague pointed out, Archer lost $113 million in Q1 2023, almost double the $59.2 million in Q1 2022. Its non-GAAP operating expenses in Q3 2023 were $66.9 million, 9.5% higher than a year ago. In the first nine months of 2023, its operating loss was $339.6 million, 42% higher than a year earlier. That’s with $0 of revenue.
Worse than the fact that it’s losing money is that its financials are full of non-GAAP mumbo jumbo, which makes it challenging to know the precise state of its financial situation.
For example, its general and administrative expenses in the third quarter were -$21.6 million. So, the employees are paying the company? No, it’s because of a $75.3 million non-cash charge for a technology and dispute resolution agreement expense.
Follow the bouncing ball. Unless you’re a trained reader of financial statements, this should discourage you from placing a bet on this company, regardless of its potential.
The Bottom Line on ACHR Stock
There’s a reason almost 50% of Berkshire Hathaway’s (NYSE:BRK.B) $375-billion equity portfolio is in Apple (NASDAQ:AAPL) stock. It’s Warren Buffett’s top conviction stock by a country mile—the next nine stocks in the top 10 account for just under 40% of the portfolio. The remaining 41 stocks account for the remaining 12%.
So, if you want to hold 43 stocks in your portfolio, ensure ACHR stock is at the bottom of your list, not at the top. Unless, of course, you don’t have to go to work anytime soon.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
