Archer Aviation is an attractive investment for high-risk-tolerance investors; DCF valuation indicates ~30% upside over 12-18 months.

I recently upgraded the rankings on Joby Aviation and Archer Aviation stocks, informing investors with a very high risk tolerance that the risk versus reward is now worthwhile for these EVTOL companies.

But now I'm getting the question, which one of these two EVTOL companies is the better investment at current market prices? So when we're looking at scale, Joby Aviation has the early advantage with $116 million in trailing 12-month revenue compared to just 6.9 million for Archer Aviation.

and Archer Aviation made that huge acquisition acquiring assets from Boeing that will also add significantly to their top-line totals.

Looking forward, however, the core category of these businesses, the EVTOL, they're still in the early stages getting regulatory approval, testing the technology, proving to regulators that it's safe, and it delivers indeed what they say it delivers, working with regulators when they give them feedback, adjusting their technology, incorporating the feedback, etc.

It's going to be a back-and-forth process that could take a while before these two have working EVTOLs broadly available across the world. And the opportunity is huge.

Uh the number of cities around the world with markets that are densely populated, meaning rush hour traffic could cause you to take, you know, an hour and a half to get to work in a 20-mi radius.

And so the opportunity there is huge. People would be willing to pay a premium price to access this technology to travel and make it accessible to go on the road and leave your home during these hours that could cause you to be stuck for several hours.

Now, when I made these upgrades and ranked these stocks as buying opportunities, I warned investors that these are money-losing enterprises. Significant cash burn. But Joby Aviation is further ahead in this regard as well, -500% in cash flow from operations compared to -7,800% for Archer Aviation.

And this is a common theme for many early-stage companies that are still trying to develop the technology to make it broadly available. These are at a fraction of the scale that they will be if they achieve their grand ambitions.

But for investors, that's a huge inflection point. When a company hits when an early-stage company finally gets to a level where they're at least breaking even in terms of cash flow, that's the more important figure.

A lot of times investors look at, you know, breaking even in terms of net profit margin or another profit margin, but those are not as important as the cash flow because that determines if these companies need to go to investors and ask for more money.

If you're profitable, but you're still negative in cash flow, that's not as effective as being positive in cash flow, but still negative in terms of profits. And this just goes to the complexities of the accounting system.

In the United States, there are a lot of non-cash expenses like stock-based compensation, depreciation, and amortization that muddle the income statement and the cash flow statement,

but I encourage investors when you're when you're evaluating early-stage companies and where you're evaluating companies that are still growing and still have large prospects for the future, look at the cash flow statement, prioritize that over the income statement because this is where the company will need to go to investors and ask for more capital.

And if they have to do that in a desperate situation, they're going to have to accept worse terms in order to get more money from investors. Whereas, if a company is, you know, self-sustaining, you know, they're they're at least breaking even in terms of cash flow from operations to sales, then they can be more patient.

They can only go to investors at opportune moments, at moments when there's euphoria in the stock market, when prices are elevated, when interest rates are low.

They can time it opportunistically to get capital at those moments rather than needing capital perhaps in a desperate situation where they don't have the choice and they have to accept the terms offered by investors and investors are not kind in those moments.

They really try to maximize the rate of interest charged if a company comes to them in a desperate situation. So in that same regard, evaluating their balance sheet is important.

Looking at how much cash they have in the bank versus how much debt they have and how much interest expense they have.

And thankfully, these two, they have very low levels of debt and so the cash in the bank account is the important thing here. Joby Aviation, again, more cash. $2.26 billion in cash and short-term investments in the bank account compared to Archer Aviation with $1.568 billion.

So they both have a robust sum of capital in the bank account. They were able to capitalize during moments of frenzy and euphoria in the market and sell stock at elevated valuations and so shored up their balance sheets and they've got a long runway, a lot of time to hit their next milestone,

to hit that next level when they can then go back to investors and say, "Look, we've hit this next milestone. We're now less risk. We're now lower risk because we've achieved this level and investors would be even more willing to give them capital at more attractive terms.

And interestingly, they're selling at very similar valuations when we measure on a forward price to sales ratio. Archer Aviation at 29.6, Joby Aviation at 28.7.

You can almost call this a tie because of the high risk, high reward nature of these investments. The margin of safety needs to be wider. I also calculated a discounted cash flow valuation for these two companies and they look undervalued when measuring using this valuation method.

For Archer Aviation, I calculated a fair value at $7.16 compared to the current market price of $5.48.

There looks to be about 30% upside to Archer Aviation over the next 12 to 18 months when evaluating using my discounted cash flow basis.

And of course, if we look longer term, there is much more upside to Archer Aviation.

So, I like the risk versus reward for Archer and Joby. They look attractive at these levels. But remember, these should only be considered for investors with a very, very high risk tolerance.

These are very high risk investments with the potential for explosive returns in the long run.