Cathie Wood Continues to Purchase Shares in Archer Aviation, Raising Questions About Investment Opportunities Before the $5 Mark.
Cathie Wood from Ark Invest is renowned for her strong beliefs in cutting-edge themes, disrupting industries like tech or life sciences. While Wood has got her fair share of media attention, I must confess that her investment strategies sometimes come off as outlandish to me.
Recently, I've observed that Ark Invest has significantly increased its stake in electric vertical takeoff and landing (eVTOL) company Archer Aviation (ACHR -1.16%). With Archer's shares priced at $3.26 as we speak, is Wood making a wise investment decision? Let's delve deeper and find out.
Wood is betting big on Archer, yet...
To a certain extent, Ark's interest in Archer's stock makes perfect sense. Wood was an early supporter of Tesla, frequently publishing research with lofty price targets for the electric vehicle (EV) giant that seemed unlikely, given the prevailing consensus on the company's potential. Yet, Tesla surpassed these targets, much to the surprise of skeptics.
To me, Archer offers a fresh angle on the broader EV sector, one that's separate from Tesla. This angle might justify investing in Archer, but Wood's recent buying spree suggests that she's quite bullish on the company.
Between Oct. 28 and Oct. 30, Ark acquired 2.5 million shares of Archer, divided into three separate deals. Given Archer's apparent low stock price, it might seem that Wood is capitalizing on a promising opportunity to enter the EV market.
...investors ought to scrutinize the fine print, and...
In my view, Archer is straddling the line between feasibility and market acceptance. I'm fascinated by the concept of aerial EV taxis augmenting transportation patterns, especially in densely populated urban areas like cities.
That said, Archer hasn't managed to gain enough traction yet to prove if its vision is viable. I bring this up because despite boasting a billion-dollar pipeline of purchase orders, the company hasn't recognized a single dollar in revenue.
As long as sales remain elusive, Archer will continue to incur high costs in the form of sizable capital expenditures (capex) and ongoing research and development (R&D).
...keep these details in mind
Just as Tesla isn't the sole player in the EV car manufacturing realm, Archer's position in the eVTOL market isn't exclusive. The company faces stiff competition from Joby Aviation, another Ark portfolio holding, along with other private contenders.
Archer is a critical holding in three of Wood's exchange-traded funds (ETFs): ARK Autonomous Technology & Robotics ETF, ARK Space Exploration & Innovation ETF, and ARK Innovation ETF. Given this information, I believe Archer is little more than a diversification strategy or contingency plan for Wood's investments in various sectors, such as autonomous vehicles, robotics, and space exploration.
Despite trading for only around $3 per share, the company's market cap is a hefty $1.3 billion. I must admit, I'm not comfortable with the idea of paying such a high premium for a company that burns through cash and lacks sales.
From my perspective, a stock like Archer is far too speculative at the moment. I appreciate the concept, but remain cautious about its long-term prospects. To put it simply, investing in Archer is a high-risk, high-reward prospect.
At present, I suggest keeping an eye on Archer's progress in terms of securing additional partnerships and moving closer to commercializing and revenue generation. Until then, Archer seems like an interesting notion, but not necessarily a sound investment option.
Based on Cathie Wood's history of successful investments in disruptive industries, her recent increase in Archer Aviation's stock could be seen as a strategic finance move, leveraging her belief in the potential growth of electric vertical takeoff and landing (eVTOL) technology. However, given Archer's current financial situation, with high costs in the form of capital expenditures and research and development, investing in Archer carries a high level of risk, offering the possibility of significant returns.
