What happened

Wednesday is turning out to be a very good day to own stock in drone maker AeroVironment (AVAV -0.92%) -- but a very bad day to be a client of Spruce Point Capital.

Last month as you probably recall, short-seller Spruce Point Capital publicly trashed AeroVironment stock, accusing the company of "poor governance," "unjust insider enrichment," and "frequent accounting errors" -- and weak free cash flow to boot. Spruce Point called AV's valuation "nonsensical and distorted," predicted AeroVironment stock would come crashing down to earth, and told investors to sell it.

Instead, AeroVironment stock is soaring this morning -- up 32.8% as of 11:35 a.m. EST. This astounding performance comes in response to a fiscal second-quarter 2018 earnings report that showed AV walloping analyst estimates with earnings of $0.29 per share (a seven-cent loss was expected) on sales of $73.8 million (versus expectations of $63.9 million).

Drone silhouette

Wednesday dawned bright for investors in drone maker AeroVironment. Image source: Getty Images.

So what

AeroVironment grew its revenues 47% year over year in fiscal Q2 and added seven full percentage points to its gross margin -- now 42%. Operating and net results, which were both negative in the year-ago quarter, turned positive this year.

As for the free cash flow that so concerned Spruce Point last month, AV reported negative free cash flow for its fiscal second quarter. Still, thanks to a strong performance in Q1, the company has generated positive free cash flow of $18.1 million over the first six months of this year.

Now what

Management now predicts that AeroVironment will book sales of between $280 million and $300 million this year, and earn between $0.45 and $0.65 per diluted share on that revenue. Taken at the midpoints, this works out to a respectable 9% growth rate on sales -- but less than a 2% increase in profits.

Despite all the enthusiasm investors are showing for AeroVironment stock this morning, this is not an aggressive -- or even an encouraging -- prediction. Given that Wall Street is looking for AV to earn at least $0.61 on sales of $294 million or better, there still appears to be some risk that AeroVironment will underperform expectations for the year.

But at least the company is moving in the right direction. At a bare minimum, this week's earnings keep hope alive.