Archer Aviation Experienced a Dip After Initial Gain Today – Is the Shares Worth Purchasing?
Archer Aviation Experienced a Dip After Initial Gain Today – Is the Shares Worth Purchasing?
Archer Aviation's (ACHR -1.85%) stock took a dip in today's trading, despite a surge earlier in the session. The electric flying-taxi company's shares had climbed as high as 16.4%, but closed the day with a 1.5% decrease. Meanwhile, the S&P 500 (^GSPC -0.22%) dropped 3%, and the Nasdaq Composite (^IXIC -0.16%) ended the day lower by 3.6%.
Archer Aviation started off the day with significant gains after receiving favorable coverage from Cantor Fitzgerald. The analyst firm maintained its "overweight" rating on the stock, which is equivalent to a "buy" recommendation. They also raised their one-year price target for the stock, upping it from $10 per share to $13 per share. However, these gains couldn't be sustained.
The Federal Reserve reduced interest rates by 0.25% today, as anticipated. The benchmark interest rate is now 4.25%, but comments from Fed Chairman Jerome Powell sparked a shift towards bearish sentiment. Despite progress in combating inflation, Powell's remarks suggested that the central bank will tread carefully with future rate cuts.
Should investors buy Archer Aviation stock?
Today's significant shift in stock price reflects the volatility that characterizes Archer Aviation stock. The company is yet to generate revenue and is still awaiting regulatory approvals for its Midnight flying vehicles to commence commercial operations. Given its current valuation of approximately $3.85 billion, despite lacking substantial revenue, investing in Archer Aviation is an inherently risky venture.
On the positive side, Archer Aviation seems poised to lead in an emerging market with immense long-term potential. The company has secured customer orders worth $6 billion for its Midnight vehicles, and it expects to commence commercial flights next year.
Furthermore, Archer has recently entered the defense industry through a partnership with Anduril. Anduril, a defense innovation company, has enjoyed success in securing contracts with the U.S. military. Integrating flying electric vehicles into the defense industry could serve as a significant growth catalyst for Archer.
Although Archer Aviation carries a speculative, growth-dependent valuation, it has potential avenues for delivering substantial returns for long-term shareholders. High-risk investors, seeking big returns, may find Archer Aviation an attractive addition to their portfolios. However, investors should bear in mind that the stock is likely to be highly volatile. Adopting a "dollar-cost-averaging" strategy instead of attempting to time a large buy all at once might be a more prudent approach.
Despite the day's market-wide downtrend, Cantor Fitzgerald maintained its "overweight" rating on Archer Aviation's stock, suggesting that investing in the company's finance could still yield returns, given its potential in the emerging electric flying-taxi market. However, given the company's current valuation and lack of substantial revenue, this investment opportunity comes with significant financial risk.