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Why AeroVironment Stock Just Popped 17%

By Rich Smith - Sep 6, 2018 at 1:39PM

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Earnings are out, and the news is just great.

What happened

Shares of small drone maker AeroVironment, Inc. (AVAV 3.87%) are up an astounding 16.9% as of 1:05 p.m. EDT after reporting fiscal Q1 2019 earnings that blew Wall Street's estimates entirely out of the water.

Expected to report $0.29 per share in profits for the first quarter of its new fiscal year, AeroVironment instead said it earned $0.85 per share. Sales for the quarter reached $78 million, which was also more than Wall Street had been expecting.

Drone shooting rockets at a tank.

AeroVironment scored a direct hit with Q1 earnings. Image source: Getty Images.

So what

AeroVironment had a tough time of things last year as its stock was dogged by short reports questioning its ability to grow its business and calling its valuation "nonsensical and distorted." The best way to respond to such short reports, however, is by proving the critics wrong -- and AV did that in spades last quarter.

Q1 sales surged 127% year over year, and gross profit margins earned on those sales came close to doubling, up from 25% a year ago to 42% in fiscal Q1 2019, pulling AeroVironment up from an operating loss a year ago to an operating profit this year. On top of all that, proceeds from a beneficial litigation settlement added $0.26 per share to AeroVironment's bottom line, resulting in the aforementioned $0.85-per-share profit.

Now what

Expect more good things from AeroVironment as the year progresses. Backlog at the company (which will transform into revenues as the year progresses) more than doubled to $157 million by the end of the quarter, lending AeroVironment management confidence to make the following prediction:

By the end of fiscal 2019, AV expects to have earned between $1.10 and $1.40 per share on sales of from $290 million to $310 million.

Assuming this is how things work out, at the midpoint of those estimates, the company is on track to grow earnings 49% on sales growth of only 11%. No wonder AV's shareholders are thrilled.

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