Reasoning Behind Disregarding the "Sell-Half" Policy with Archer Aviation: Three Justifications
According to traditional investment advice, you should sell half your position when a high-risk growth stock doubles in value. This practice enables you to secure profits and continue benefiting from the stock's growth. However, despite my 106% return on Archer Aviation (ACHR -5.56%) from my original $2.92 investment, I'm going against this rule.
The rationale behind this exception lies in a collection of compelling factors that suggest this bullish trend might just be getting started. Let's delve into why this electric airplane innovator might warrant special treatment, despite being a highly speculative investment.
Institutional endorsement enhances credibility
What sets Archer Aviation apart from other early-stage growth stocks is its impressive investor pool. Automotive giant Stellantis N.V., the parent company of brands like Chrysler, Dodge, Jeep, Ram, and Fiat, has shown confidence by investing 20% and partnering with Archer for manufacturing.
Moreover, established funds such as BlackRock, Vanguard, and Millennium Management's billionaire Israel Englander have significantly invested in Archer Aviation. Despite the 35.9% institutional ownership, there's still room for substantial further investment.
Moreover, the current market trend favoring small-cap stocks provides an additional boost. Over the past 30 days, the Russell 2000 Index, to which Archer belongs, has risen almost 9%, significantly outperforming the S&P 500's 2.97% growth. Archer's stock has particularly gained, surging 93.5% during this period.
Short-sellers face increasing pressure
As of October 31, around 20% of Archer's shares were sold short, creating a potentially escalating problem for shorts. Archer's recent Q3 report revealed several developments that may push short-sellers to revise their evaluations.
Archer's manufacturing facility is set to be completed soon, allowing the company to launch aircraft production in early 2025. The company also expects to produce two aircraft per month by the end of the year.
The company's progress in the FAA's certification process is notable as well. It has practically completed phase 3 of the four-phase process while advancing through the final phase. Archer also announced a planned Q4 2025 commercial launch in the UAE, reflecting real-world progress towards generating revenue.
The market opportunity is enormous
Despite fierce competition in the electric vertical takeoff and landing (eVTOL) market, Morgan Stanley projects that the industry could surpass $1 trillion by 2040. Archer's aggressive global partnerships position it as a major player in this nascent eVTOL landscape.
For instance, its recent partnership with Japan Airlines and Sumitomo Corporation's joint venture Soracle adds $500 million to its order book, bringing the total to over $6 billion.
Considering its current market cap of just $2.6 billion, Archer seems significantly undervalued when comparing it to its industry peers trading at 3.6 times sales.
A calculated exception to tradition
Deciding to keep my full position was not an impulsive choice. Archer continues to be a high-risk investment in an unproven sector, but my deliberate positioning strategy helped secure lower entry prices. This strategy also cushions against potential drawdowns.
The convergence of manufacturing progress, regulatory advancements, and commercial partnerships suggests Archer's transition from concept to reality. The massive market potential, strong institutional backing, and looming short squeeze create an asymmetric risk-reward scenario that justifies maintaining full exposure, in my view.
While the sell-half rule is indispensable for managing risk in speculative stocks, Archer's unique combination of catalysts make this an exception worth exploring. As always, proper position sizing is essential for early-stage growth companies-however, for investors who've built their stake carefully, allowing this stock to ride its wave could result in attractive returns.
Given the institutional endorsements from reputable companies like Stellantis N.V., BlackRock, Vanguard, and Millennium Management, and the significant market potential of the electric vertical takeoff and landing (eVTOL) market estimated to surpass $1 trillion by 2040, it might be prudent to reconsider traditional finance advice about selling half a position when a high-risk growth stock doubles in value. Instead, the enormous market opportunity, strong institutional backing, and potential short squeeze could justify further investing or holding onto a full position in Archer Aviation.
Despite the high-risk nature of investing in Archer Aviation and the unpredictability of the eVTOL sector, the company's progress in manufacturing, regulatory advancements, and commercial partnerships indicate a potential for transformation from concept to reality. Such favorable factors could result in attractive returns for investors who have carefully built their stake in this company, suggesting the need to reassess traditional advice on selling in such situations.
