LONDON, ENGLAND – SEPTEMBER 26: The British Army display a AeroVironment Wasp Small Unmanned … More Aircraft System (SUAS) surveillance drone during the Dronex Epo at ExCel on September 26, 2023 in London, England. The show combined with the Advanced Air Mobility Expo and Helitech Expo bring together the key innovators, pioneers, suppliers and buyers within the UAV sector from across four key sectors including; commercial, military & defense, emergency services and future of flight. (Photo by John Keeble/Getty Images)
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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.
AeroVironment has a price-to-sales (P/S) ratio of 7.3 compared to a figure of 3.1 for the S&P 500
Additionally, it has a price-to-earnings (P/E) ratio of 164.3 against the benchmark’s 26.9
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How Have AeroVironment’s Revenues Changed in Recent Years?
AeroVironment’s Revenues have grown slightly over recent years.
AeroVironment has experienced its top line increase at an average rate of 19.5% over the last 3 years (compared to an increase of 5.5% for the S&P 500)
Its revenues grew by 5.2% from $706 million to $743 million in the last 12 months (vs. a growth of 5.5% for the S&P 500)
Additionally, its quarterly revenues dropped 10.2% to $168 million in the most recent quarter from $187 million a year prior (compared to a 4.8% improvement for the S&P 500)
How Profitable Is AeroVironment?
AeroVironment’s profit margins are significantly lower than the majority of companies in the Trefis coverage universe.
AeroVironment’s Operating Income over the previous four quarters amounted to $33 million, yielding a very low Operating Margin of 4.4%
AeroVironment’s Operating Cash Flow (OCF) during this timeframe was $-13 million, indicating a very poor OCF Margin of -1.7% (compared to 14.9% for the S&P 500)
For the last four-quarter period, AeroVironment’s Net Income was $33 million – signifying a subpar Net Income Margin of 4.4% (compared to 11.6% for the S&P 500)
Is AeroVironment Financially Stable?
AeroVironment’s balance sheet appears solid.
AeroVironment’s Debt figure was $59 million as of the end of the most recent quarter, while its market capitalization stands at $6.6 billion (as of 6/25/2025). This translates to a very strong Debt-to-Equity Ratio of 1.1% (compared to 19.4% for the S&P 500). [Note: A low Debt-to-Equity Ratio is preferable]
Cash (including cash equivalents) represents $47 million of the $1.0 billion in Total Assets for AeroVironment. This results in a low Cash-to-Assets Ratio of 4.5%
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.
Inflation Shock (2022)
AVAV stock decreased 61.0% from a high of $137.94 on 9 February 2021 to $53.78 on 28 January 2022, versus a peak-to-trough decline of 25.4% for the S&P 500
The stock fully recouped its pre-Crisis peak by 1 December 2023
Since then, the stock has reached a high of $235.17 on 11 November 2024 and currently trades near $235
COVID-19 Pandemic (2020)
AVAV stock dropped 58.7% from a high of $119.83 on 18 September 2018 to $49.54 on 27 August 2019, in contrast to a peak-to-trough decline of 33.9% for the S&P 500
The stock completely recovered to its pre-Crisis peak by 14 January 2021
Global Financial Crisis (2008)
AVAV stock decreased 51.9% from a high of $40.03 on 13 February 2009 to $19.27 on 18 March 2009, as opposed to a peak-to-trough decline of 56.8% for the S&P 500
The stock fully regained its pre-Crisis peak by 24 March 2014
Summarizing the Facts: Implications for AVAV Stock
In conclusion, AeroVironment’s performance across the metrics detailed above is summarized as follows:
Growth: Neutral
Profitability: Extremely Weak
Financial Stability: Neutral
Downturn Resilience: Extremely Weak
Overall: Very Weak
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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