SRVR

Archer Aviation (NYSE:ACHR) and Rocket Lab (NASDAQ:RKLB) are both targeting what could become major markets in the future of flight, but from very different directions.

Archer is developing eVTOL (electric vertical takeoff and landing) aircraft for urban air mobility, while Rocket Lab is building a broader space business spanning launch services, satellites and spacecraft components.

That gives investors two very different ways to play aerospace. Archer is still working toward commercial operations with its Midnight aircraft, while Rocket Lab already has a functioning business and a substantial backlog.

Against this backdrop, investor Sarah Appino, who contributes to The Motley Fool, has been taking the measure of both names and comes down strongly in favor of only one.

Looking at Archer, its appeal centers on Midnight and the potential for air taxis to become a new form of urban transportation. The company has made progress with flight testing, including piloted city-to-city flights, and is preparing to participate in the U.S. government’s eVTOL Integration Pilot Program later this year. Archer has also expanded its ambitions through its planned acquisition of Boeing’s Wisk Aero, Insitu and SkyGrid businesses. Insitu would add more than $200 million in annual revenue, while the other businesses would bring autonomous-flight and airspace-management technology. Boeing is also set to invest in Archer and become a strategic partner.

The financial picture still reflects an early-stage company, however. Archer reported $5 million of revenue in Q2, while recording a net loss of $263.2 million and burning $156.4 million of cash in operating activities during the quarter. The company ended June with $1.56 billion in cash, cash equivalents and short-term investments.

Rocket Lab, on the other hand, is much further ahead. Its Electron rocket has established the company in the launch market, while its space-systems business supplies spacecraft and satellite components. Second-quarter revenue reached a record $234 million, up 62% from a year earlier, while backlog climbed to a record $2.36 billion, up 137%.

The company is also working on its larger Neutron rocket, which could significantly expand its addressable market. Rocket Lab secured more than $437 million in new launch contracts during Q2 and the period immediately afterward, taking its launch backlog above 90 missions. It has also agreed to acquire Iridium Communications, a deal that would move the company further into satellite communications if completed.

The risks are different, too. Archer still faces the challenge of obtaining the necessary regulatory approvals and proving it can manufacture and operate its aircraft at scale. It is also taking on execution risk as it expands into defense and autonomous aerospace. Rocket Lab, meanwhile, remains exposed to the technical risks of rocket launches and its reliance on government and commercial contracts. The proposed Iridium acquisition also creates financing and integration risks.

Regarding valuation, Rocket Lab is richly valued at around 49 times trailing sales and about 51 times enterprise value to revenue, but it has substantial revenue and a large contracted backlog that provide investors with a clearer picture of its existing operations. Archer, meanwhile, trades at roughly 558 times trailing sales, so its valuation depends much more heavily on expectations for future commercialization of its aircraft and the businesses it is adding.

For Appino, that difference ultimately determines the choice. Archer could have significant upside if eVTOL aircraft become a major form of transportation, and its expansion into defense and autonomous technology adds further potential. But the business remains dependent on successful certification, commercialization and continued investment.

Appino therefore prefers Rocket Lab, and it’s “not a close call.”

“Rocket Lab is my pick because it is already generating revenue, winning contracts, and building a business that keeps getting larger,” the investor summed up. “If you’re comfortable with early-stage volatility, Rocket Lab is a more tangible foundation than a company still waiting on regulatory approval.” (To watch Appino’s track record, click here)

Wall Street actually likes both these names. Archer claims a Strong Buy consensus rating, while its $11.60 average price target offers 12-month upside of a hefty 17.5%. RKLB’s Strong Buy consensus view is backed by a $109.47 average target, a figure pointing to one-year gains of 54%. (See ACHR stock forecast or RKLB stock forecast)