ACHR Stock: Why Are Investors Hating Archer Aviation Today?

Specialist in air mobility Archer Aviation (NYSE:ACHR) saw its shares plummet by about 6% despite a flurry of positive developments. An electric vertical takeoff and landing (eVTOL) aircraft maker, Archer just posted better-than-expected second-quarter results. The company has also entered into credibility-building agreements with large enterprises. Still, ACHR stocks printed red ink, likely due to valuation concerns.

At first glance, the sale seems irrational. Yesterday, Archer reported a loss per share of 32 cents in Q2, beating the expected print of a loss of 33 cents. While this may not sound remarkable, Archer is a pre-revenue enterprise. As such, they need to manage costs before the sales generation phase. Therefore, an attenuation of expected earnings losses is positive.

More significantly, Archer announced an agreement in principle with the automaker Stellar (NYSE:STLA). On Reutersthe automaker will absorb up to $370 million in labor costs to support Archer’s eventual launch of its eVTOL aircraft.

Moreover, as InvestorPlace’s Thomas Niel pointed out, Archer signed a memorandum of understanding with Southwest Airlines (NYSE:LUV) last month. Niel notes that Archer already has a partnership with United Airlines (NASDAQ:UAL) regarding the operation of air taxi routes. All of these events suggest that ACHR stock should rise in value.

So why does equity decline?

The rating refers to Cloud ACHR stock

For context, this isn’t the first time ACHR stock has stumbled. Over the past month, the stock has fallen more than 11%. Since the beginning of this year, Archer has fallen about 35% on the charts. As a result, short interest or bear bets against the eVTOL specialist have increased.

According to Fintel, the short interest of ACHR shares is 28.08% of the float. Additionally, its short interest rate — or the number of sessions needed to cancel all bear bets against ACHR based on average trading volume — comes in at 9.29 days to cover.

What may cause this skepticism towards ACHR’s actions is its projected valuation. Analysts estimate that in fiscal 2024, Archer could have revenues of $2 million. By 2025, this figure could rise to $55.08 million. Additionally, the most optimistic target is $78 million. Assuming 302.75 million shares outstanding, ACHR would currently trade at about 14.7x estimated 2025 sales.

The average price-to-sales ratio of the core aerospace and defense industry is 1.72x.

That TipRanks’ Vince Condarcuri pointed out that because of Archer’s relatively tight cash, it “will likely continue to rely on equity financing to finance its operations, which will dilute the value of its current outstanding shares.”

Such dilution risk threatens to further worsen ACHR’s projected stock valuation, thus explaining the decline.

As of the date of publication, Josh Enomoto did not own (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to InvestorPlace.com Publishing Guide.

At the time of publication, the responsible editor had (either directly or indirectly) no position in the securities mentioned in this article.