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.
Spooked by the twin bad news items of a disappointing earnings forecast and an analytical downgrade, investors are dumping shares of AeroVironment (Nasdaq: AVAV ) today. I happen to own shares myself and ... I couldn't be happier.
I'll tell you why in a moment, but first -- the bad news. Yesterday evening, AeroVironment (AV to its friends) reported its fiscal year-end 2010 results. "Record revenue and profitability" in the fiscal fourth quarter were the headline, but the underlying news was significantly less bullish. In a tough year for defense, this maker of unmanned aerial vehicles (and un-gasolined charging stations for electric cars) grew its revenues less than 1%, to $250 million. Operating margins came in at an underwhelming 12%, while net profits plunged more than 15% to just $0.94 per diluted share.
Worse still, in forecasting how things might play out next year, AV hewed to its traditional conservatism and predicted revenue growth of only 10% to 15% (short of consensus expectations for 16% growth), alongside operating margins that could, once again, be as low as 12%.
Aside from that, Mrs. Lincoln, how was the play?
Pretty lousy news, you must admit. While everybody else in the UAV-world -- from Global Hawk-er Northrop Grumman (NYSE: NOC ) to Black Hawk roboticist United Technologies (NYSE: UTX ) to Phantom up-and-comer Boeing (NYSE: BA ) -- is busy reporting new products, new contracts, and generally taking the world by storm, AV seems stuck in a rut.
That said, there is reason to hope things will soon improve. Consider: Earnings dropped 18% last year, but free cash flow turned back up at year-end, holding cash production to just a 5% drop ($25.2 million). Naturally, we don't want to see any decline at all, and so it's disheartening to see that while AV managed to cut its accounts receivable by 10% last year, its inventories spiked 80% higher.
And yet, take a closer look at those inventories and tell me -- what do you see? Finished goods up 100%, yes, and I'd certainly rather see those goods showing up as "goods sold" rather than as "inventory." But work-in-progress is up 170%, which suggests to me that AV is gearing up to complete and deliver quite a lot of finished goods in the near future. Call me an optimist, but as surprised as Wall Street purports to be about AV's guidance, I wouldn't put it past the company to surprise us to the upside with its actual results this year.