Is Aerovironment Stock A Buy At Its 52-week High?
AeroVironment (NASDAQ: AVAV) is flying high, with shares rallying more than 55% this year, according to data from S&P Global Market Intelligence. The defense contractor is seeing strong demand for its portfolio of unmanned aerial vehicles and intelligence systems defining the next generation of high-tech warfare.
With the active conflict in Eastern Europe and lingering geopolitical tensions in the Middle East, the expectation is for further growth. Even with shares sitting at a 52-week and an all-time high, I believe there's more upside for investors.
AeroVironment is a defense-tech growth story
The financial and operating trends from AeroVironment over the past year have been impressive. For the fiscal third quarter covering the period ending Jan. 27, 2024, the company reported record revenue of $187 million, a 39% year-over-year increase. Non-GAAP earnings per share of $0.63 was even stronger, up 91% from the prior year's quarter.
AeroVironment's Loitering Munitions Systems (LMS), including the Switchblade, have been a big part of the growth and earnings momentum. Segment sales climbed by 141% year over year, driving the top-line growth.
Results last quarter were good enough for management to boost its full-year outlook. The company now forecasts fiscal 2024 revenue to grow by around 30%, compared to a previous midpoint target of closer to 28%. 2024 non-GAAP earnings per share are expected to be between $2.69 to $2.83, more than double the $1.26 last year.
Image source: Getty Images.
The Pentagon is ordering more Switchblades
The company notes that thousands of its unmanned systems have been successfully deployed in Ukraine, and the U.S. Department of Defense has taken notice. In early May, AeroVironment's Switchblade 600 was selected by the Pentagon for the first tranche of the "Replicator Initiative." This program aims to fast-track the deployment of autonomous systems to soldiers on the front lines.
While specifics of the contract haven't been disclosed, it will likely add to AeroVironment's $463 million backlog, which has already climbed by 12% over the past year. That metric is a key monitoring point as it offers good visibility that the company's recent growth can continue as orders get fulfilled.
AeroVironment is pushing more into high-tech
It's important to recognize the company is much more than just "kamikaze drones" -- it's investing more in software. In 2023, AeroVironment acquired "Tomahawk Robotics," a leader in artificial intelligence (AI)-enabled control systems, expanding the company's reach into intelligence and machine learning. The Tomahawk Kineses is a tactical interface that combines specialized hardware and AI capabilities designed to control unmanned vehicles in military operations.
The effort here is to deliver a unified ecosystem that can connect and manage the full portfolio of AeroVironment's autonomous technology. The company's Chairman, President, and CEO Wahid Nawabi commented on these themes during the last earnings conference call:
We're upgrading our software stack to include new machine learning enabled autonomy and computer vision image recognition features for this amazing product.
In a similar manner, we're leveraging our most recent acquisition, Tomahawk Robotics, to bring open architecture common control systems to our full UAS portfolio. This business has now successfully transitioned into our Unmanned Systems segment, and we expect to integrate the Kinesis software platform with our UAS platforms later this year.
Ultimately, that push can be positive for margins long term as services play a bigger role in the business.
What's next for AeroVironment Stock?
There's a lot to like about AeroVironment. The global military escalations in the last few years have added a new urgency for the U.S. and allied nations to increase defense spending. AeroVironment's solutions are well-positioned to capture a portion of these new military investments.
At the same time, the caution here is that shares are trading at 74 times the company's 2024 midpoint earnings-per-share (EPS) target. As good as the outlook appears, the market is already assigning a pricey premium for the stock, based on high expectations.
The risk is that there may be a setback if the sales trajectory forces a reassessment of the earnings outlook. Still, I believe the current valuation is justified, considering the company's unique battlefield presence and the number of growth catalysts.
If Aerovironment continues to deliver solid results, the stock could continue rewarding investors.
Should you invest $1,000 in AeroVironment right now?
Before you buy stock in AeroVironment, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AeroVironment wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $671,728!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of May 28, 2024
Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
