What happened

Up 56% year to date, shares of small-drone maker AeroVironment (AVAV 5.73%) nonetheless hit an air pocket in the month of November, tumbling more than 9% in a single day (Nov. 8) after an analyst report pointed out serious shortcomings with the stock. The bad news is that in the nearly one month since that stumble, AeroVironment stock has almost entirely failed to recover, gaining back less than three of the percentage points it lost.

The good news is that there's at least a chance AeroVironment will regain its lost altitude in the quarters to come.

Drone firing rockets at a tank

Drone maker AeroVironment seemed to get hit by a drone strike itself last month. Image source: Getty Images.

So what

AeroVironment's month turned miserable when short-seller Spruce Point Capital declared that the company's sharp increase in valuation earlier in the year was both "nonsensical and distorted." As Spruce pointed out, AeroVironment has produced no sustained revenue or FCF growth over its history, has run through an alarming number of CFOs over the past few years, and is now on its fourth CFO since coming public.

On top of this, Spruce Point leveled accusations of "poor governance," "unjust insider enrichment," and "frequent accounting errors" in its report -- and even went so far as to criticize the quality of AeroVironment's Puma and Raven drones.

Now what

Spruce Point's criticisms of AeroVironment are not without merit. Over the past 12 months, it generated less than $2 million in free cash flow from its business, which was far less than the $17.4 million it produced as far back as 2013, for example. CFO turnover has been a concern, and S&P Global Market Intelligence confirms that there have been accounting restatements in AeroVironment's past. But the news isn't all bad.

For the past two years, AeroVironment had no free cash flow at all, and was in fact burning cash, but that's no longer the case. In fact, last quarter alone (the company's fiscal Q1 2018), it churned out more free cash flow than it generated in all of 2013 -- $18.3 million. Sales grew a healthy 21% in fiscal Q1 as well.

Ultimately, whether AeroVironment regains its lost altitude or plummets to earth depends on whether management can repeat and build on the strong results we saw last quarter. Spruce Point Capital may have its opinion of the stock, and I have my own, but what really matters are results -- and those are entirely AeroVironment's responsibility to produce.