Ultimately, Archer Aviation must build its aircraft, obtain approval to fly it, and then successfully sell it. These updates show that everything is going in the right direction.

These updates give investors hope that Archer Aviation will eventually go from being a non-revenue-generating company with an idea to an actual revenue-generating company. However, there is still a lot that investors don’t know.

Unfortunately, Archer Aviation is far from the only company putting eVTOL aircraft in the air. Joby Aviation is a similar company that has already conducted a demo ride in New York City. There will also be competition from aviation companies Boeing And airbus.

Archer Aviation’s $6 billion backlog sounds impressive, but the company points out that these orders are conditional, meaning they could fail if something goes wrong. It’s also unclear how much capital the company will need before it can sustain itself with cash flow.

In other words, investors could face dilution in the coming years as management issues shares to raise funds when needed. It was recently asked Stellantiswhich previously invested in Archer Aviation, has committed up to $400 million in additional capital to finance production.

As if that weren’t enough, it’s unclear what Archer Aviation’s profits, market share, or long-term growth rates will look like. These variables are all important in valuing a stock.

Archer Aviation’s market cap is about $2.5 billion at the current price, and at $10 per share it would be over $4 billion. Analysts currently expect the company to generate sales of around $1.1 billion in 2028. Investors must therefore be careful not to unknowingly pay too high a valuation because they had unrealistic expectations.

The stock may not be able to maintain a high price-to-sales (P/E) ratio in the long term. Airlines and automobile companies trade on low P/E ratios due to competition, low margins and high capital expenditures. If Archer Aviation proves similar, the stock could already be pricing in revenue growth into the 2030s, especially if shares continue to move toward $10 and the $4 billion market cap. Therefore, investors may want to remain patient and avoid chasing a stock that has doubled in value in just a few weeks.

Keep in mind that Archer Aviation’s business may take years to establish itself. It is a high beta stock, meaning it is volatile. There will likely be setbacks along the way. Investors who want to own Archer Aviation should dollar-cost average into stocks, limit Archer Aviation to a small percentage of a diversified portfolio, and look for better buying opportunities when the stock market inevitably declines.

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool recommends Stellantis. The Motley Fool has a disclosure policy.

Should you buy Archer Aviation while the price is under $10? was originally published by The Motley Fool