Electric aircraft maker Archer Aviation (ACHR -3.08%) is one of the new hot stocks on the block, having gone public only a few years ago. Similar to Tesla (NASDAQ: TSLA), investors are fascinated by its innovation with electric vehicles and think its future air taxis have the potential to be a leader in the sky.
In September of 2021, Archer Aviation went public through a special purpose acquisition company (SPAC), otherwise known as a blank check company. SPACs acquire companies to take them public. However, investors can invest in a SPAC before they know what company the SPAC will acquire, making them risky because you don't always know what you'll get.
If you'd invested $1,000 when Archer Aviation began trading, here's how much you'd have today.
SPAC-Land zoomed and then crashed
SPACs were all the rage in 2020 and 2021 due to the easy money the Federal Reserve pumped into the U.S. economy and the zero-interest rate environment. It was a risk-on environment, and investors were looking to put money to work. SPACs took many companies to the public markets early and at astronomical valuations.
One of these companies was Archer Aviation. Tech valuations were sky-high, and SPAC shares could flood the market after lock-up provisions expired, causing massive dilution that impacted share prices. Valuations also suffered once inflation got out of hand and the Fed had to jack up interest rates quickly. As you can see below, the $1,000 invested in Archer Aviation is worth only $425 today.
Can you buy Archer Aviation today?
I largely believe there are no bad assets, just bad prices. That's what happened with most SPACs, including Archer Aviation, which I view as a compelling stock today.
Archer Aviation has made significant progress through required regulatory work that could allow it to put its electric aircraft into commercial use. The company thinks its Midnight air taxis could take flight in New York City and Chicago starting next year. Archer Aviation is only the second air taxi to receive final airworthiness criteria from the Federal Aviation Administration and has already completed 400 test flights.
This kind of lead over competitors could result in a dominant market share of the sky one day. There will undoubtedly be risk with a company this early and wading into unknown waters, but I like the risk-reward proposition here.
