Ark Invest CEO Cathie Wood is known for making moonshot bets. While most money managers balance their portfolios with a healthy mix of blue chip, growth, and even some speculative stocks, Wood tends to build positions in riskier opportunities.
One stock that has recently become a staple in Wood's buying activity is Archer Aviation (ACHR -1.32%), a manufacturer of electric air taxis. Between Oct. 28 and Nov. 13, Ark Invest purchased 2.5 million shares of Archer.
Nearly one month later, on Dec. 13, Wood doubled down on her Archer bet -- scooping up a whopping 5 million shares spread across her ARK Innovation, ARK Autonomous Technology & Robotics, and ARK Space Exploration & Innovation exchange-traded funds (ETFs).
With shares trading below $10, has Wood identified a rare bargain in the electric vehicle (EV) industry? Let's explore some of the developments going on at Archer to help better assess if now is a good opportunity to follow Wood's lead and buy some shares.
It's been a busy month for Archer
Since Wood started to ratchet up Ark's buying activity in Archer stock during late October, shares of the EV player have soared by 166% as of market close on Dec. 17.
Below, I've outlined some notable pieces of news surrounding Archer over the last month or so and explain why these events likely inspired an uptick in the stock.
- Nov. 7: Japan Airlines and Japanese conglomerate Sumitomo recently formed a joint venture called Soracle Corporation. As part of the initiative, Soracle is forming an advanced air mobility plan to alleviate pressures on ground transportation in highly congested, densely populated areas by offering EV air taxi flights as an alternative form of mobility. Soracle has chosen Archer to assist with this endeavor, placing an order for 100 Archer Midnight aircraft -- a deal estimated to be worth $500 million.
- Nov. 19: Boutique investment bank Needham initiated coverage of Archer stock on Nov. 19 and placed a buy rating on the stock with a projected price target of $11.
- Dec. 12: Earlier this month, Archer struck an important alliance with Anduril -- a rising star in the development of autonomous solutions for Military operations. As part of the same announcement, Archer announced that it had raised $430 million in equity from existing partners Stellantis and United Airlines to help fund its ambitions in the defense realm.
While each of these storylines is an exciting development for Archer, I'd argue that some of the potential from these deals is beginning to be priced into Archer's stock given its massive run over the last month. Nevertheless, with such an exciting roadmap ahead, there's more to uncover before determining whether or not buying Archer stock right now makes fundamental sense.
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Is Archer Aviation stock a buy?
There's no doubt that Archer's air taxis have garnered significant interest. Personally, I am encouraged by the company's ability to command attention across multiple end markets, including traditional commercial applications and the U.S. military.
But with all of that said, it's important to remember where Archer is in its life cycle. The company has yet to generate any revenue, and until dollars are coming through the door, Archer will remain a pricey stock, considering its cash burn.
To be candid, I think Wood has gotten pretty lucky with Archer. When she was buying the stock in late October, it was likely an effort to reduce Ark's cost basis, given how low shares were trading. And while I can only speculate, I have to think Ark's massive purchase on Dec. 13 was influenced by the Anduril partnership and new equity financing -- thereby providing Archer with some degree of runway and alleviating liquidity pressures until the company begins to commercialize its operation.
In many ways, I see Archer as akin to an up-and-coming athlete being touted as the "next Michael Jordan" before they've even played one game at the professional level. While these comparisons make for good narratives, there's still a lot of speculation involved. I think an investment in Archer is only reserved for those who are comfortable with volatility, unpredictability, and the unknown.
