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Following a positive development in the legal sphere, shares of Archer Aviation (NYSE:ACHR) — a manufacturer of electric vertical takeoff and landing (eVTOL) aircraft — moved higher on Tuesday. Earlier, the company became the subject of a class action lawsuit alleging the misleading of investors. However, the plaintiff in the case voluntarily dismissed the suit. Still, ACHR stock probably won’t be out of the legal realm indefinitely.
According to Archer’s press release, the eVTOL specialist announced this morning that the plaintiff filing the federal securities lawsuit on Sept. 21, 2023, has chosen to dismiss the case. Further, the plaintiff’s dismissal comes shortly after Archer filed a motion to dismiss the lawsuit on Oct. 13.
According to industry journal FlightGlobal, Pomerantz — an active litigator of class-action suits leveled against multiple enterprises – originally filed the complaint against Archer. Per the suit, Pomerantz argued that Archer CEO Adam Goldstein and others misled investors by stating that the advanced aircraft manufacturer aims to carry passengers in 2025.
Using information provided by short-seller firm Grizzly Research, the lawsuit alleged that certification of Archer’s Midnight aircraft remains “years away.” Also, launching commercial operations within the next two years represented an unrealistic directive.
For its part, Archer’s attorneys responded that the “[p]laintiff has hastily accused Archer of fraud without any basis whatsoever.”
ACHR Stock May Encounter a Legal Irony
At the moment, Archer has every right to be in a celebratory mood. As a relatively small enterprise, it doesn’t need distractions. Therefore, the fact that the legal process just happened to move quickly to dismiss the class action lawsuit is a positive for ACHR stock.
Nevertheless, the irony is that Archer and the eVTOL industry will need the legal winds to accelerate, this time to establish a firm regulatory framework from which to launch. While it’s not accurate to characterize the U.S. eVTOL landscape as completely unregulated, the Federal Aviation Administration (FAA) is actively developing safety standards and regulations.
Put simply, legal clarification regarding eVTOL transport needs to catch up with the underlying innovation. That’s a matter that can’t be dismissed if ACHR stock is to fly higher.
Another potential roadblock is the air traffic congestion dilemma. While eVTOLs leverage many advantages — particularly their far-quieter noise emissions relative to helicopters — urban residents may not want that attribute to yield a saturation of electric aircraft in the skies. That’s another challenge for the FAA, which would necessarily impact ACHR stock.
Finally, while Archer has been a big winner in the market so far this year, it still faces credibility challenges. Since its public market debut, ACHR lost about half its equity value.
Why It Matters
In the past three months, analysts covering ACHR stock peg shares a unanimous strong buy. This assessment stems from four expert voices. On average, the price target lands at $9.50, implying over 93% upside potential.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.