Investors have looked closely at drone stocks for a long time, recognizing the valuable uses that aircraft without pilots onboard could serve in both military and civilian functions. AeroVironment (NASDAQ:AVAV) was one of the early pioneers of the drone industry, and one of the biggest frustrations that its shareholders have suffered over the years has been the slow pace at which the company has moved forward with its plans to make ground-controlled aerial vehicles part of mainstream aviation.

Coming into its fiscal first-quarter financial report earlier this month, AeroVironment investors wanted to see better results than the company had projected three months ago. AeroVironment did indeed have some reasons for its shareholders to be more optimistic, and that could bode well for the company's long-term prospects.

AeroVironment gains some altitude

AeroVironment's fiscal first-quarter numbers were a breath of fresh air for many investors. Revenue jumped 11% from year-ago levels to $86.9 million, and that was a few percentage points stronger than most of those following the stock had anticipated. Net income of $17.1 million was down substantially year over year, but after taking into account the positive impact of a litigation settlement in last year's quarter, adjusted earnings from continuing operations of $0.74 per share were up $0.15 from where they were a year ago and also topped the consensus forecast among investors.

Various aircraft pictured receiving signals from the ground.

Image source: AeroVironment.

The most encouraging news from AeroVironment was that its product sales climbed significantly. Revenue from selling products climbed 19% year over year. That offset a drop in contract-services revenue, which was lower by 7% over the same period. The shift in sales mix also led to a big rise in gross margin, which climbed 5 percentage points to 47%.

Backlog figures also started moving in the right direction. The company pointed to $165.2 million in funded backlog, which was up by more than 5% from where it was 12 months ago.

CEO Wahid Nawabi highlighted AeroVironment's expertise in key growth areas. "Strong performance globally in our small unmanned aircraft systems product line reflects our continued leadership in this category," Nawabi said, "which will benefit further from our newly acquired VAPOR unmanned helicopter solutions." The CEO also noted that it's making a lot of headway on other key programs, and the combination of promising opportunities could spur growth both this year and beyond.

The next step for AeroVironment

In particular, AeroVironment noted that it now has a better handle on when it can expect to receive orders from the U.S. Army for its Switchblade tactical missile systems, and the high-altitude pseudo-satellite program has already gone through ground testing and expects to start flight testing in the near future.

At least for now, AeroVironment doesn't see that long-term success translating into better-than-expected numbers in the current fiscal year. The company kept guidance largely unchanged, projecting revenue of $350 million to $370 million in fiscal 2020, and adjusted earnings will likely remain in its previously stated range of $1.47 to $1.67 per share.

Yet the drone maker left open the possibility of moves to accelerate its growth. During the conference call, Nawabi said that AeroVironment has already expanded its geographical reach and expects to keep attracting talented professionals in the field. If the CEO can find complementary businesses that would help his company move forward faster, then AeroVironment would consider acquisitions or collaborations to get the job done.

Shareholders in AeroVironment were pleased with that news. After rising 11% on the day after the announcement, the stock is now up 18% from where it traded prior to the release. There's no denying that AeroVironment has a lot of potential, but only now have investors seemed to have confidence that the drone maker will be able to make good on all of its promise -- and deliver better long-term returns.