In light of AeroVironment’s (AVAV) extremely impressive fiscal fourth quarter results, along with a few other factors, my view of AVAV stock has become more positive for investors. In my previous column on the drone maker, I wrote that it would probably benefit from “rapidly” increasing demand for its products. However, due to the company’s significant exposure to Ukraine and the high valuation of its stock, I recommended that investors wait for the price of the shares to fall before buying them.
Actually the share price did drop, dropping from a high of $199 on June 13, to a low of $186.55 on June 17. As of the market close on June 11, the price had jumped to $263.80. So investors who managed to time the stock very well have profited significantly.
I think that growth investors who purchase the shares will generate high profits over the longer term, despite the stock’s recent gains and its elevated valuation.
Excellent Q4 Results and Hegseth’s Pro-Drone Decision
The firm’s revenue surged 40% during its Q4 that ended in May, compared with the same period a year earlier, to $275 million. Also notably, it finished the quarter with a large backlog under contract of $726.6 million, representing a huge year-over-year increase of 82%. And driven by the continued strong demand for AeroVironment’s Switchblade drone, the revenue of the firm’s Loitering Munitions Systems jumped 87% YOY to $138 million. According to CEO Wahid Nawabi, “eight countries…have placed firm initial orders (for the Swtchblade) and an additional eight (U.S.) allies (are) actively engaged in the foreign military sales process.”
Meanwhile, Defense Secretary Pete Hegseth recently told the Pentagon to increase the speed at which drones are made and introduced into the field. To facilitate this directive, the Defense Secretary is allowing officers with a rank as low as captain to buy and immediately operate drones. Hegseth’s directive should enable the military to obtain many more of the aircraft in the coming years.
Ukraine and Its Potential Impact on AVAV
It appears that a peace deal between Russia and Ukraine could still potentially be reached relatively soon, as U.S. Secretary of State Marco Rubio noted recently that America and Russia had both developed new peace initiatives. “I think it’s a new and a different approach,” Rubio said, adding that he would discuss the concepts with the President.
However, AVAV now expects Ukraine to account for less than 5% of its revenue during its current fiscal year. Moreover, given the company’s very fast growth and its multiple, promising initiatives that I detailed in my previous column, along with Hegseth’s initiatives, there is a good chance that this proportion could easily drop much further going forward.
Consequently, I no longer view this issue as an obstacle to investing in AVAV.
Valuation and the Bottom Line on AVAV Stock
The forward price-earnings ratio of AVAV is a very high 86 times. But with the company already expanding extremely quickly and its innovations, along with Hegseth’s moves, likely to cause its growth to accelerate much further, the shares are still quite attractive.
*This article is intended to be informational only; it is not financial advice.
