Why Archer Aviation Stock Popped 10% on Tuesday

Shares of electric air taxi company Archer Aviation (ACHR 11.83%) soared 10.2% through 10:15 a.m. ET on Tuesday, marking its second straight day of gains after Deutsche Bank predicted the stock would double.

On Monday, the German investment bank made headlines when it reiterated its $12 price target on Archer stock — a more than 130% gain over yesterday’s closing price.

Archer Aviation by the numbers

Archer released its third-quarter 2023 financial results on Friday, noting that it possesses $600 million in liquidity, including $461 million in cash and equivalents. The company announced plans to raise an additional $70 million through issuances of new stock on Monday.

The company reported $46 million in operating expenses and a $52 million loss for the quarter, and warned that as it continues test flights and preparations for a commercial launch of air taxi services in 2025, its operating costs will rise to between $100 million and $110 million in the fourth quarter.

Still, assuming costs don’t keep rising, $670 million should be enough cash to get Archer through the five quarters remaining between today and 2025 — at which point revenue coming in might suffice to reduce the company’s cash needs.

Is Deutsche Bank right to recommend Archer Aviation stock?

Archer still isn’t entirely out of the financial woods, however. True, in its note, Deutsche Bank pointed to Archer’s strong cash position as a major point in the stock’s favor, alongside progress made getting FAA approval of the company’s Midnight electric aircraft for commercial flight. (Archer CEO Adam Goldstein made similar points in The Motley Fool’s recent talk with him.)

Also true, according to the latest data from S&P Global Market Intelligence, Archer isn’t burning cash quite as quickly as its generally accepted accounting principles (GAAP) losses might suggest. Over the last 12 months for example, GAAP losses at the air taxi company have exceeded $444 million — but cash burn was only $393 million. And analysts polled by S&P forecast less than $450 million in cash burn next year.

That being said, while I believe Archer has the cash it needs to survive into 2025, long-term forecasts still have the company burning cash that year — and for several more thereafter. In fact, Archer isn’t expected to turn truly free cash-flow-positive before 2030.

Investors should expect to see a lot more ups and downs in this stock between now and then.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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