Before we get into the valuation details for Archer Aviation, here are a few key points to frame the story.

• If you are wondering whether Archer Aviation’s current share price reflects its true worth, it helps to step back and look at both the recent returns and how fair value is being assessed.
• The stock closed at US$6.43 recently, with a 4.9% decline over the past week, a 12.8% decline over the past month, a 20.9% decline year to date, and a 14.0% decline over the past year. The 3 year return sits at a very large gain and the 5 year return at a 38.4% decline.
• Recent headlines around Archer Aviation have focused on its position in the emerging electric air taxi space and ongoing progress toward commercial operations, which has kept investor sentiment active. These developments help explain why the stock’s multi year return has been very strong at times, even though the shorter term numbers have been weaker.
• On our checks, Archer Aviation scores a 4 out of 6 valuation score. Next we will walk through what that means across different valuation approaches, before finishing with a view on an even more rounded way to think about value.

Approach 1: Archer Aviation Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes projected future cash flows and discounts them back into today’s dollars to estimate what the business might be worth right now.

For Archer Aviation, the most recent trailing twelve month Free Cash Flow is a loss of about $672.1 million. Analysts provide detailed forecasts through 2030, with Free Cash Flow projections remaining negative in several years before reaching a projected $380 million in 2030. Beyond that, Simply Wall St extrapolates cash flows up to 2035 using the same 2 Stage Free Cash Flow to Equity approach, keeping everything expressed in US$.

When all those projected cash flows are discounted back to today, the model arrives at an estimated intrinsic value of about $26.88 per share. Compared with the recent share price of $6.43, the DCF output suggests Archer Aviation is trading at a 76.1% discount to this estimate. This indicates a wide gap between the market price and this particular valuation model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Archer Aviation is undervalued by 76.1%. Track this in your watchlist or portfolio, or discover 50 more high quality undervalued stocks.

Approach 2: Archer Aviation Price vs Book

For companies that are not yet profitable, earnings based metrics like the P/E ratio are less helpful, so it often makes more sense to look at asset based measures such as the Price to Book, or P/B, ratio. Book value is anchored in the company’s reported net assets, which gives you a reference point that does not depend on positive earnings.

In general, a higher “normal” or “fair” valuation multiple tends to go with higher expected growth and lower perceived risk, while slower growth and higher risk usually justify a lower multiple. With that in mind, Archer Aviation currently trades on a P/B of 2.17x, compared with the Aerospace & Defense industry average of 4.28x and a peer average of 4.56x.

Simply Wall St’s Fair Ratio is a proprietary estimate of what P/B you might expect for Archer Aviation, based on factors such as earnings growth, industry, profit margin, market cap and specific risks. This can be more tailored than a simple comparison to peers or the industry, because it aims to account for the company’s own characteristics instead of assuming that all players deserve the same multiple. On this framework, Archer Aviation’s actual 2.17x P/B sits below the Fair Ratio estimate, which indicates that the shares are trading at a discount on this measure.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Archer Aviation Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let me introduce you to Narratives, which is Simply Wall St’s way of letting you attach a clear story about Archer Aviation’s future revenue, earnings and margins to your own forecast and fair value. You can then compare that fair value to the current price in a simple view on the Community page, with the numbers updating automatically when fresh news or earnings arrive. For example, one Archer Narrative might focus on a very positive view of Urban Air Mobility, Stellantis support and large backlogs, and arrive at a fair value of about US$16.32. Another might focus on contract risk, mixed signals and a more cautious outlook, with a fair value close to US$0. Seeing that wide range side by side helps you decide where your own view sits and how that lines up with the current market price.

For Archer Aviation however we'll make it really easy for you with previews of two leading Archer Aviation Narratives:

Fair value: US$16.32 per share

Implied discount to fair value: 60.6% compared to the recent US$6.43 share price

Revenue growth assumption: very large

• Backers see Archer as a front runner in Urban Air Mobility, with Stellantis handling the heavy lifting on high volume manufacturing so Archer can focus on aircraft design and certification.
• The bull case leans on a multi billion dollar order book, including United Airlines, and the idea that airport transfer routes could give Midnight a clear use case.
• Supporters frame the stock as a high risk, high reward call option on FAA certification and commercial launch, with a fair value estimate around US$16.32.

Fair value: US$0.00 per share

Implied overvaluation compared to this fair value view is extremely high, given the recent US$6.43 share price

Revenue growth reference: very large off a low base

• This view highlights that Archer is heavily held by ETFs and that recent trading has been driven by media attention and a sharp price move rather than fundamentals.
• The focus is on Department of Defense contracts that provide fixed term cash inflows, but with mixed technical signals between long term bullish patterns and short term bearish ones.
• The author notes that future quarterly reports and contract news could be key swing factors, while assigning a fair value of US$0, which reflects a very cautious stance on the equity.

These two narratives sit at opposite ends of the spectrum, which is exactly the point. You can use them as reference points, decide which assumptions feel more realistic to you, and then shape your own view in between those anchors rather than relying on a single headline number.

Do you think there's more to the story for Archer Aviation? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.