Cathie Wood of Ark Invest is best known for her high conviction in emerging themes, disrupting sectors such as technology or life sciences. While Wood has earned her share of media coverage, I’ll admit that sometimes I find her investment takes to be somewhat far-fetched.
Recently, I noticed that Ark Invest has added a significant chunk to its position in electric takeoff and landing company Archer Aviation (ACHR 4.50%). With shares of Archer trading for just $3.26 as of this writing, is Wood getting a good deal? Let’s dig in and find out.
Cathie Wood’s going big on Archer, but…
In some ways, Ark’s ownership of Archer stock makes a lot of sense. Wood was an early bull on Tesla, often publishing research with stock price targets for the electric vehicle (EV) maker that seemed completely disconnected from reality — that is, until Tesla eclipsed those price ranges despite widespread skepticism from those less optimistic on the company’s potential.
To me, Archer represents a different form of exposure to the broader EV sector — one that’s tangential to Tesla. While this notion might support the idea of investing in Archer, Wood’s recent buying activity suggests that she is more than a little optimistic about the company.
Between Oct. 28 and Oct. 30, Ark scooped up 2.5 million shares of Archer, spread across three separate purchases. Given Archer’s seemingly low stock price, it may look like Wood is buying the dip on a potentially lucrative opportunity set to disrupt the EV market.
Image source: Getty Images.
…investors need to take a look underneath the hood, and…
In my eyes, Archer is stuck between proof-of-concept and product-market fit. Anecdotally, I am intrigued by the idea of airborne EV taxis augmenting mobility patterns — particularly in more densely populated environments such as cities.
But with that said, Archer hasn’t gotten enough traction yet to really prove if its vision is sustainable. I say that because despite its billion-dollar book of purchase orders, the company is yet to recognize $1 of revenue yet.
So long as sales aren’t coming through the door, Archer will continue racking up costs in the form of hefty capital expenditures (capex) and ongoing research and development (R&D).
…keep these things in mind
Just as Tesla isn’t the only EV car manufacturer, Archer’s presence in the electric takeoff and landing vehicles is not exclusive. The company competes heavily with Joby Aviation, another position in Ark’s portfolio — and one that Wood also scooped up shares in around the same time as her recent Archer purchases. There ae also several other private competitors.
Archer is a core position across three of Wood’s exchange-traded funds (ETF): ARK Autonomous Technology & Robotics ETF, ARK Space Exploration & Innovation ETF, and ARK Innovation ETF. Given this information, I honestly feel that Archer is simply a diversification play — or hedge — to other companies that Wood has invested in across industries, such as autonomous vehicles, robotics, and space exploration.
Despite “only” trading for about $3 a share, the company’s market capitalization sits at $1.3 billion. I don’t know about you, but I’m not too keen on paying over $1 billion for a company that burns cash and isn’t generating sales yet.
From my point of view, a stock like Archer is just too speculative right now. While I like the idea of the company, I am wary of its long-run potential. Simply put, investing in Archer is very much high risk, high reward.
For now, I think the prudent thing to do is monitor the company’s progress in terms of additional partnerships and movement toward widespread commercializing and revenue generation. Until then, I see Archer as a cool idea, but not necessarily a sound investment choice.