Why Archer Aviation Stock Was Grounded in August

Archer Aviation (ACHR 0.15%) added some much-needed cash in August, but at the expense of existing shareholders. The news had a negative impact on the stock.

Archer shares lost 18.5% in August, according to data from S&P Global Market Intelligence, as investors adjusted to more shares after the offer.

Focused on the long journey ahead

Archer is one of several companies working to commercialize electric vertical takeoff and landing (eVTOL) aircraft. The company’s Midnight aircraft could one day ferry passengers across busy rush-hour streets or bring passengers from the outer suburbs to airports, but for now the design is a work in progress.

In August, Archer announced a $107 million loss on low revenue as it works to build its manufacturing footprint ahead of its planned launch in 2025. It also announced a new $175 million private placement of to existing investors, incl Stellar and United Airlines Holdings.

The financing is required but required the sale of 49.3 million shares of Archer stock. The deal makes every existing share worth a little less, and these deals usually send shares lower at least in the short term. Investors’ hope is that the added cash will make the business stronger and more valuable in the years ahead, offsetting the dilution.

Archer has nearly $6 billion in potential orders from customers including United and Southwest Airlines. The company is currently working with the Federal Aviation Administration (FAA) on certification, with the goal of having a product ready for commercial service by next year.

The technology is unproven but based on existing designs. There is a crowded field of competitors working to develop the eVTOL, but Archer, along with Joby Aviationseems to be at the head of the pack.

Is Archer Aviation Stock a Buy?

Archer started September on a positive note. Analysts at HC Wainwright initiated coverage on the stock with a buy rating and a $12.50 price target, saying the company is moving toward certification and has good partnerships in place once approval is secured.

There is a lot of potential here and a lot that could go wrong. For those willing to focus on the long term and who can handle some turbulence along the way, Archer could be a good fit for a well-diversified portfolio. Just understand that it won’t be a quick trip to profitability.