Why AeroVironment Inc. Stock Is Flying High Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of AeroVironment (NASDAQ: AVAV  ) have surged 14% higher today following the release of the high-tech drone manufacturer's fiscal 2014 fourth-quarter earnings results.

So what: AeroVironment's 2014 fiscal year ended with a bang on April 30, as quarterly revenue shot 36% higher year over year to $73.5 million, pulling earnings up to a whopping $0.36 per share. Both figures trounced Wall Street's consensus, which had called for $69.6 million in revenue and $0.23 in EPS. This was driven largely by the quarter's 42% year-over-year surge in unmanned aerial vehicle sales, to $60 million.

AeroVironment also boosted its revenue guidance for fiscal 2015 from the earlier $230 million-$250 million to a new range of $250 million-$270 million. This comes in well ahead of the current Wall Street top-line consensus of $254 million, but a gross profit margin estimate of 34.5%-37.5% produces $93.6 million in gross profit. That's a bit weaker than 2014's realized gross margin of 37% (gross profit was $93.6 million for fiscal 2014on revenue of $251.7 million) when using the midpoints from both guidance ranges.

Now what: If we assume that AeroVironment will wind up with a similar distance between its gross and net margins next year as it did for fiscal 2014, it will collect roughly $13.9 million in net income, which represents earnings growth of only 1.5% over 2014. Its revenue guidance for fiscal 2015 also offers a weak 3.3% growth rate from 2014's revenue. That's still a long way from the high-water marks of the 2012 fiscal year, which saw AeroVironment post $325 million in annual revenue and $30 million in net income, for EPS of $1.36.

AeroVironment's P/E ratio has been stuck near all-time highs in the triple digits this year. Weak projected growth plus record-high valuations generally don't produce good returns going forward. Potential investors should probably avoid this stock for the time being.

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