When it comes to investing in young, developing companies, there's always a trade-off to be made. Do you buy early, before it has proved its business concept? Or do you wait until the concept is proven and potentially miss out on some of the potential gains?
If you are willing to take on the risk of buying it early, Archer Aviation(NYSE: ACHR) could be worth picking up before May 12, when it delivers its first-quarter report. Here's why.
Archer Aviation is working toward the proof of concept
Archer Aviation is actively manufacturing its Midnight aircraft -- an electric vertical-lift, short-haul airplane that is meant to be used like a taxi, but in the sky. The business concept is pretty simple. There's only so much room in developed cities for vehicles to operate on the ground -- and that room is, for the most part, filled up much of the time with heavy traffic congestion.
The Midnight electric vertical takeoff and landing (eVTOL) plane is capable of transporting its passengers from point to point within those cities, above that congestion.
Image source: Getty Images.
That may sound a little like science fiction, but Archer Aviation has a factory and it expects to produce up to 10 of its aircraft in 2025. It has clearly taken the drawing-board concept and brought it close to reality. All that's needed at this point is to set up an air taxi service.
Buying shares of Archer Aviation before it reports first-quarter results on May 12 gets you in the door before that happens. But what are investors going to find out next week?
The FAA approval process
Probably the most important thing for the long-term future of Archer Aviation is going to be its update on how the regulatory approval process is going with the Federal Aviation Administration (FAA). The U.S. government heavily regulates the aerospace industry given the risks involved when things go wrong with aircraft. As such, many of the Midnights that get manufactured in 2025 are likely to go toward the approval effort. That means testing, testing, and more testing.
Archer Aviation is moving along this process, but it is not complete. And, thus, it can't operate Midnight eVTOLs on a commercial basis yet in the United States. The update here will be important to hear, but it is highly likely that further progress has been made.
The factory update
As noted, Archer Aviation has a factory up and running, and expects to produce up to 10 Midnight aircraft in 2025. The first-quarter report will include an update on where it stands relative to that production goal. Airplanes are complex machines, and the company needs to get its manufacturing processes right at low volumes before it can ramp up to higher volumes.
That said, the company has already produced some aircraft, so buying before it hits higher volume production numbers isn't going too far out on a limb. But it is still going to be vital to monitor how well the company manages the production process as it ramps its business up.
Abu Dhabi is the big test
The biggest update of all, however, is likely to be about the progress Archer Aviation is making in Abu Dhabi. The company is setting up its first air taxi service with a partner in the Middle East. It's attempting to build a template that it can use in other areas as it looks to expand; it already has another deal with an Ethiopian company.
This is a soup-to-nuts effort, involving delivering aircraft, building facilities, and training pilots, among other things. The first set-up might be a little rough, but it will help to smooth out the process in the next country. And every time Archer Aviation starts another air taxi service outside the United States will make it that much easier for it to get set up quickly here after the FAA approves the Midnight.
The company already has FAA approval to train pilots and operate an airline in the U.S. market. It's a risk to invest in it before its first air taxi service is set up, of course, but it means getting in before the ball starts really rolling after FAA approval.
Buying Archer Aviation before May 12 will not be for everyone
It will require nerves of steel to buy Archer Aviation before its first-quarter report. In fact, it will require nerves of steel to buy before the company carries its first commercial customer. But a lot of progress has been made by this upstart aerospace company and it appears like it is getting closer and closer to checking all of the boxes it needs to check. The end goal, to sell air taxis and operate an air taxi service, could be right around the corner.
Buying now will get you in the door before that point, and set you up for the largest possible gains if Archer Aviation becomes a leading air taxi company.
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Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
