AeroVironment Can't Get Off the Ground

Don't let it get away!

Keep track of the stocks that matter to you.

Help yourself with the Fool's FREE and easy new watchlist service today.

"This stock's got potential." It's a phrase calculated to spark investor interest, but it's also loaded with multiple meanings. AeroVironment (Nasdaq: AVAV  ) ought to know.

AeroVironment certainly has the potential to displace Northrop Grumman's (NYSE: NOC  ) Global Hawk as the king of high-altitude, unmanned surveillance, and to defeat Boeing's (NYSE: BA  ) Phantom Eye in the contest to build a High Altitude Long Endurance aircraft for the Air Force. It has the potential to expand the use of small- and micro-unmanned aerial vehicles among squad- and platoon-size units among the Army and Marines, and to dominate sales even in the face of competition from Honeywell's (NYSE: HON  ) T-Hawk. And on the civilian plain, it has the potential to ease the merging onto U.S. highways of fully electric vehicles such as the new electric Ford (NYSE: F  ) Focus and Nissan (Nasdaq: NSANY  ) Leaf, as well as Tesla's (Nasdaq: TSLA  ) anticipated "Model S," by creating a charging infrastructure to "fuel" them.

Yet for all its potential, AeroVironment hasn't done a very good job lately of executing on any of it.

Potential vs. actual
Or at least that's my read on the situation, after reviewing AeroVironment's first quarterly report of fiscal 2011, released this week. Once again, AV has underwhelmed investors with a report of weak revenue growth (1%year-over-year), this time combined with an admission of operating and net losses. Worse still, the sharp revival in free cash flow we saw last quarter was sadly lacking in Wednesday's report. With free cash flow turning negative, the company's rate of annual cash generation dipped to just $19.6 million.

Granted, the stock's price also fell. With analysts predicting long-term annual earnings growth of 25%, and a valuation of about 25 times free cash flow on the stock, you might think this makes for a "potential" profit opportunity in AeroVironment shares -- but I'm not so sure.

Consider: According to AeroVironment, revenue growth this year will fall far short of 25% -- just 10% to 15% is all management can promise us. Worse, operating profit margins on those revenues are expected to slip.

Foolish takeaway
To me, this all adds up to another year of little to no profit growth at AeroVironment -- and little or no chance that this stock will live up to its potential in 2011.

Fool contributor Rich Smith regrets to say that he owns shares of AeroVironment, which is also a Motley Fool Rule Breakers recommendation. Ford Motor is a Motley Fool Stock Advisor recommendation. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2010, at 8:24 AM, Gonzhouse wrote:

    I bought 4 years ago and sold/gave up about 12 months; the next Ryan Leaf of stocks.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1297493, ~/Articles/ArticleHandler.aspx, 10/25/2016 5:13:11 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 7 hours ago Sponsored by:
DOW 18,223.03 77.32 0.43%
S&P 500 2,151.33 10.17 0.47%
NASD 5,309.83 52.43 1.00%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/24/2016 4:00 PM
AVAV $22.80 Up +0.52 +2.33%
AeroVironment CAPS Rating: ****
BA $137.45 Up +1.82 +1.34%
Boeing CAPS Rating: ****
F $12.19 Up +0.17 +1.41%
Ford CAPS Rating: ****
HON $109.26 Up +0.30 +0.28%
Honeywell Internat… CAPS Rating: ****
NOC $216.46 Up +0.60 +0.28%
Northrop Grumman CAPS Rating: ****
NSANY.DL2 $14.49 Down +0.00 +0.00%
Nissan Motor Co.,… CAPS Rating: **
TSLA $202.76 Up +2.67 +1.33%
Tesla Motors CAPS Rating: **