AeroVironment: Buy Or Sell AVAV Stock At $235?
AeroVironment (NASDAQ:AVAV), a prominent drone manufacturer, experienced a stock surge of over 20% on June 25th following the release of stronger-than-anticipated Q4 results (the fiscal year concludes in April). The company's adjusted earnings of $1.61 per share and sales of $275 million significantly exceeded the consensus forecasts of $1.39 and $242 million, respectively.
Drones are increasingly employed by the U.S. Department of Defense for surveillance and payload delivery, and the demand for these unmanned aerial vehicles is projected to remain strong. Drones provide benefits in terms of quicker deployment and reduced costs.
While AeroVironment's flagship product is the Switchblade, new products such as the P550, Jump 20-X, Titan 4, and Red Dragon are expected to attract orders from the U.S. and its allies. Additionally, the company further bolstered its standing through a $4.1 billion acquisition of BlueHalo, a defense technology firm specializing in drones and laser weapon systems. This acquisition considerably enhances AeroVironment's product lineup.
In spite of these favorable developments, a critical question persists: is AVAV stock worth purchasing at $235? We believe it is not. At its current price, AVAV stock appears overvalued. Our judgment stems from a thorough evaluation of AeroVironment's present valuation relative to its recent operational performance and its historical and current financial health. Our analysis of AeroVironment across essential criteria—Growth, Profitability, Financial Stability, and Downturn Resilience—reveals that the company demonstrates very weak operating performance and financial condition. We will elaborate on these findings further below. Nevertheless, if you desire upside potential with less volatility than individual stocks, the Trefis High Quality portfolio offers an alternative — having outperformed the S&P 500 and achieved returns exceeding 91% since its inception. Separately, see – QuantumScape: What's Happening With QS Stock?
How Does AeroVironment's Valuation Compare to The S&P 500?
When examining what you pay per dollar of sales or profit, AVAV stock appears overvalued in comparison to the wider market.
How Have AeroVironment's Revenues Changed in Recent Years?
AeroVironment's Revenues have grown slightly over recent years.
How Profitable Is AeroVironment?
AeroVironment's profit margins are significantly lower than the majority of companies in the Trefis coverage universe.
Is AeroVironment Financially Stable?
AeroVironment's balance sheet appears solid.
How Resilient Is AVAV Stock During An Economic Downturn?
AVAV stock has performed significantly worse than the benchmark S&P 500 index during several of the recent downturns. Concerned about the potential effects of a market crash on AVAV stock? Our dashboard How Low Can Stocks Go During A Market Crash illustrates how key stocks performed during and after prior market crashes.
Summarizing the Facts: Implications for AVAV Stock
In conclusion, AeroVironment's performance across the metrics detailed above is summarized as follows:
Taking into account AeroVironment's (AVAV) weak performance across key financial metrics and its current elevated valuation, we believe the stock is unappealing at $235.
That said, we could be mistaken in our evaluation and investors may be inclined to pay a premium for AVAV, influenced by the increasing demand for drones, broadening applications, new product offerings, and the recent BlueHalo acquisition. All of these elements could enhance sales. Nonetheless, we perceive greater risk at the current price. We suggest that investors might be better off waiting for a price dip before acquiring AVAV stock.
While it would be advisable to steer clear of AVAV stock for the time being, you might want to consider the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (a combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to generate strong returns for investors. What accounts for this? The quarterly rebalanced mix of large-, mid-, and small-cap RV Portfolio stocks has provided a dynamic approach to leveraging favorable market conditions while minimizing losses when markets decline, as detailed in RV Portfolio performance metrics.
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