Buy ACHR now; valuation metrics and DCF suggest 30% near-term upside, though conviction is low due to high risk.

Last month when Archer Aviation announced that it was buying Whisk Arrow, Institute, and Sky Grid from Boeing in what appeared to me to be a sweetheart deal for Archer Aviation, the stock price soared, but in the last month, it's given up some of those gains initially received after that announcement.

So, is Archer Aviation stock now a buying opportunity? Now, if you didn't already know, Archer Aviation is a very early stage EV toll company, electric vehicle takeoff and landing.

The company's revenues are relatively small compared to the potential of what it could be in the very long run. Over the trailing 12-month period, the company generated just $6.9 million in revenue.

Of course, last month, they made that acquisition in a deal with Boeing that, in my opinion, look like a sweetheart deal. Archer Aviation got these assets because Boeing wanted to focus more on its core business, which is struggling.

One of the things I look at with companies like Archer Aviation in their early stages of development is how much cash are they burning? What's the percentage of cash flow from operations to sales?

I want to see if they're at least flat in terms of cash flow from operations to sales, which would mean that it's a self-sustaining business or are they approaching that level.

And the answer to those questions for Archer Aviation is no. They're nowhere near a self-sustainable level. over the trailing 12 month, their cash flow from operations to sales was negative 7,800%.

But the good news is that they are demonstrating improvement. They are demonstrating an ability to hit certain milestones and demonstrate progress to investors which is the main thing investors look for at these early stages.

And for Archer Aviation, that upside is huge. Very difficult to quantify at this point because the market doesn't really exist. There are no electric vehicle takeoff and landing markets worldwide that you can compare to and say, okay, this is what the company could be if it approaches one of its rivals, right?

But you can't really do that with Archer Aviation. So it's a lot of speculation. It's a lot of estimation and assumption that could be wide in terms of range. It could be this large or it could be this small.

And those are all realistic assumptions to consider when you're evaluating a company like this and doing your scenario analysis.

It should only really be considered for investors that have a very high risk tolerance. Investors that understand that an investment in Archer Aviation could result in a 50x return or a 0x return where nearly all of your money goes down. the stock loses 90 95 99% of its value.

Those are both plausible scenarios with a company like Archer Aviation.

So for those reasons, the cash balance becomes a lot more important. How much capital have they raised from investors? How much capital do they have in the bank account? So you get an idea of how much time they have until they need to go back to investors and ask for more capital.

And with Archer Aviation today, investors can see a reasonably attractive position. The company has 1.568 billion in cash and short-term investments on the balance sheet.

And I feel that happened with Archer Aviation and some of the EV toll companies too, especially around 2020, 2021, 2022. There were a lot of these high potential companies that were selling at super expensive valuations and early investors funded those prospects without completely understanding the valuation, the risk versus reward.

They were just looking at the upside and the upside is huge. I agree with that. But when you're thinking about upside, you also have to think about risk and consider risk versus the reward.

And in the earlier days, I didn't feel the risk versus reward was worthwhile for Archer Aviation.

And you can see here looking back at the price chart of Archer Aviation stock in 2021, the stock was trading at $12 per share. And a lot of investors were excited about the company at that time.

And investors had been excited about this company at various moments. But throughout the duration of its history in the public market, the stock price is down over 45%.

So there was no reason to rush in there and buy Archer Aviation stock. Just like I informed investors, there was no reason to rush in there and buy SpaceX stock when it was trading above $200 per share in the height of the euphoria, in the height of the enthusiasm.

Those are moments when you want to avoid those kinds of companies. You want to buy them at moments when all of that bubble has all of that air has kind of flowed out and there's no longer a bubble.

There's no longer that euphoria, that enthusiasm that existed when the share price was booming.

And that's the way I feel about Archer Aviation today. It's trading at a forward price to sales of 29.8, the lowest level it's traded for according to this valuation metric going back several years.

Furthermore, when I look at the company's discounted cash flow valuation, which I updated today, I calculated a fair value at $7.17, current market price $553. I calculate a 30% upside over the near term, over the next 12 to 18 months.

And then if we think even longer term, I think there's even more upside for Archer Aviation. This could be one of the companies that could 5x, 10x, or 25x your money depending on the duration and the timing of the company's success.

So, now is the time to buy Archer Aviation stock. In my opinion, if you're an investor with a very high risk tolerance and you're looking for companies that have huge upside, I'm recommending or ranking Archer Aviation stock as a buying opportunity.

Of course, I also want to mention that I have a low confidence level, low uh conviction level on this ranking because of what I talked about earlier. There is wide disparity in the potential outcomes in this investment.

High risk, high reward, wide variation in the potential outcomes. And that doesn't allow me to have a high confidence level in the ranking.