AeroVironment Has Hit a New Low

Shares of AeroVironment (Nasdaq: AVAV  ) hit a 52-week low yesterday. Let's look at how it got here and whether clouds are ahead.

How it got here
The drop in AeroVironment's shares began after the company released fiscal third-quarter earnings on March 6. The report was the first time the company didn't beat earnings estimates in more than a year and may have shown some weakness in both the defense and electric charger business.

Military spending is coming under fire, something that has a big effect on contractors such as Boeing (NYSE: BA  ) , Lockheed Martin (NYSE: LMT  ) , and AeroVironment. In general, lower spending is bad for these companies, but there may be a silver lining in that each may be able to take advantage of positive trends in unmanned aircraft. As the U.S. winds down two wars, it is also ratcheting up a strategy of higher observation levels of other countries, which should be driven by these aircraft.

In the electric vehicle space, AeroVironment is suffering a similar fate to companies such as Fisker, A123 Systems, and Ener1, which were hoping for a fast EV revolution to take place. Sales have picked up slowly, but the pace hasn't been what some expected. AeroVironment may be in a better place than vehicle and battery manufacturers, instead providing charging infrastructure, but it still has a lot of competition to deal with. General Electric (NYSE: GE  ) and Siemens (NYSE: SI  ) are making moves into the space, and they have a lot more weight to push around in the industry.

The questions in both of these industries sent off alarm bells after the earnings miss last quarter.

David vs. Goliath
Even though AeroVironment's earnings have been on a steady climb higher since 2010, as you can see below, the stock hasn't gone anywhere.

AVAV EV / EBITDA Chart

AVAV EV / EBITDA data by YCharts

This has meant that valuation ratios for AeroVironment have fallen closer to its larger competitors that are growing more slowly. The comparisons to GE, Lockheed, and Boeing aren't perfect, but they're all large players in the company's businesses. If AeroVironment can get back to steady revenue and profit growth after last quarter's blip, this could be a great buying opportunity for a company playing in two attractive industries. As a smaller company, its upside is much greater than that of competitors.

Company

3-Year Growth Rate

P/E Ratio

Profit Margin

AeroVironment

8.9%

17.7

9.5%

General Electric

(6.6%)

15.4

9.9%

Lockheed Martin

2.7%

11.6

5.7%

Boeing

3.1%

13.7

5.9%

Sources: Fool.com and Yahoo! Finance.

What's next?
Last quarter's earnings miss was due in part to a $20 million order that didn't clear during the quarter. We won't know if this was a one-time accounting event or the start of a slowdown until we see next quarter's numbers, but I'm not anticipating growth to completely halt here. The company has announced $28.3 million in unmanned aircraft orders since April 18 and military trends are heading toward observation and unmanned aircraft, AeroVironment's specialty.

I almost consider the electric vehicle business a bonus for AeroVironment's results in the future. If it performs well, great; if they don't, no big deal.

The CAPS community has given the company a five-star rating, a big thumbs-up from our users, but for now I'm going to sit out this new low even though it provides a decent value for the stock. I want to see if last quarter's decline in revenue was truly a one-time event or a sign of things to come.

Interested in reading more about AeroVironment? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Lockheed Martin. Motley Fool newsletter services have recommended buying shares of AeroVironment. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On April 24, 2012, at 2:28 PM, dbtuner wrote:

    AVAV UAVs are small UAVs and need an operator in close proximity. with the wars winding down and troops coming home,their UAV revenue will decline. It's the companies that make the long duration, remotely piloted UAVs that will get business.

    Everyone who analyses this company fails to see that fact.

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