After leading drone maker AeroVironment (AVAV) reported very strong financial results in September and announced a number of new, exciting, lucrative deals, I remain very upbeat on the company’s outlook.
Also likely to boost the firm going forward are President Donald Trump’s prioritization of drones and AI. However, the company’s valuation is enormous, and there are signs that investors are starting to become less enthused about very expensive equities.
What’s more, AVAV stock is changing hands near the price targets set by several Wall Street analysts. In light of all of these points, investors may want to wait for a better entry point before establishing new positions in the name, and those who have generated high profits from AVAV can contemplate selling a portion of their positions.
Powerful Financial Results and New, Impressive Deals
AVAV’s pro forma fiscal first-quarter revenue surged 18% versus the same period a year earlier (its Q1 ended on August 2). The pro forma revenue growth was calculated as though the firm’s acquisition of BlueHalo was closed at the beginning of May 2024 instead of at the beginning of May 2025, as was actually the case. Moreover, AeroVironment’s EBITDA, excluding certain items, came in at $56.6 million, way above the $37.2 million that it generated during the same period a year earlier. But the company attributed the latter increase primarily to the acquisition.
On the negative side, it generated adjusted earnings per share of 32 cents, well below the 89 cents that it had recorded a year earlier. Encouragingly, however, AeroVironment did indicate that it expects its adjusted EBITDA to surge to about $310 million during the current fiscal year, more than double last year’s figure of $146.4 million.
And the firm disclosed last month that it had obtained a deal worth almost $240 million to provide its long-haul space laser communication terminals to an unnamed customer in the next three and a half years. Meanwhile, on October1, AVAV announced that it had received a $499 million, one-time award from the Air Force.
Under the deal, expected to unfold over the next decade, the firm will initially “develop a suite of viable electromagnetic spectrum (EMS) protection capabilities that do not increase operational risk or degrade mission performance.” At the onset of the contract, it will also carry out R&D on electromagnetic spectrum sources and develop ways to combat EMS systems. The latter two projects are expected to generate $246 million for the firm.
And showing that the deals obtained by the company are rapidly increasing, its funded backlog soared to $1.1 billion at the end of June from $726.6 million at the end of April.
During the current Trump administration, drones and AI have been top priorities for the Pentagon. Since AVAV specializes in manufacturing drones and utilizing AI, it is well-positioned to continue to land major contracts from the agency for at least the rest of Trump’s term.
A Huge Valuation and the Street’s Caution
AVAV’s forward price-earnings ratio is a gargantuan 192 times, while its Enterprise Value/EBITDA ratio is also huge, coming in at 243 times.
After the Nasdaq, which now has many names with arguably inflated valuations, sank 3.56% on October 10, while veteran stock prognosticator Jim Cramer warned “about market froth” on September 24, it’s possible that many investors could be in the process of becoming more concerned about buying extremely expensive names.
Finally, the stock’s price is now approaching or exceeding the recently raised price targets of several analysts. Specifically, in recent months, four analysts raised their price targets on AVAV stock to levels ranging from $389 to $430, while the name closed at $392.29 on October 10.
The closeness of the share price to the targets could be another indication that the stock’s valuation is getting stretched.
*This article is intended to be informational only; it is not financial advice.
