Archer Aviation (ACHR 16.02%) stock is losing ground in Wednesday's trading after the company revealed that it plans to sell more stock. The flying taxi specialist's share price was down 9.1% at 3 p.m. ET.
NYSE: ACHR
Key Data Points
Archer Aviation published a filing with the Securities and Exchange Commission (SEC) today detailing plans to sell up to $70 million in new stock. The creation and sale of new stock will mean that previously existing shares will equal a smaller ownership position in the company -- a dynamic known as share dilution. In response, investors are selling the stock today.
Is today's sell-off an opportunity to invest in Archer Aviation?
Archer Aviation is an early mover in the emerging flying taxi market, and its business is still in a pre-revenue state. It's also posting substantial losses each quarter. Last quarter, Archer posted a net loss of $115.3 million and closed out the quarter with cash and equivalents worth $501.7 million. If the business were to continue to use cash at that rate, it would be able to operate for a little over a year.
While investors understandably have a negative reaction to stock dilution in most cases, Archer's move to sell new shares shouldn't have come as a surprise. With the company's market capitalization currently sitting at roughly $1.5 billion, the sell-off in response to offering $70 million in new stock also appears to be a significant overreaction. If you are bullish on Archer Aviation's long-term prospects and were looking for an entry point into the stock, today's sell-off could be a worthwhile buying opportunity.
Of course, investors should still approach a potential investment in Archer with the understanding that it's a high-risk stock. The flying taxi pioneer could wind up delivering explosive gains for long-term shareholders, but charting its outlook involves high levels of speculation -- and there's no guarantee that the business will scale sufficiently and shift into posting sustainable profits.
