What happened

Shares of AeroVironment (AVAV -0.41%) jumped 10% on Wednesday morning after the drone maker reported better-than-expected quarterly results and announced an acquisition.

So what

After markets closed Tuesday, AeroVironment reported fiscal second-quarter adjusted earnings of $0.48 per share on revenue of $92.7 million, beating consensus estimates by $0.17 and $10 million, respectively. The quarter was messy, in part because the company took an impairment charge on its work with Alphabet on the Loon stratospheric-balloon internet service effort, but the core business is performing well.

Soldiers deploying an AeroVironment drone.

A soldier deploys an AeroVironment drone. Image source: AeroVironment.

"Our team produced second-quarter revenue of $92.7 million, an increase of 11 percent over last year, despite the unprecedented challenges from the COVID-19 pandemic," CEO Wahid Nawabi said in a statement. "With strong momentum under way, we are confident in our ability to build on our strong foundation and extend our record of financial and operational growth and success."

The company also said it has an agreement to acquire German robotics company Telerob Gesellschaft für Fernhantierungstechnik for about $55 million, including $45 million in cash and about $10 million in debt. Telerob makes ground-based robotic vehicles that perform ordnance disposal, hazardous materials handling, and threat assessment.

AeroVironment and Telerob were already working together, having submitted a proposal to the U.S. Air Force for a robotic ordnance-disposal system.

Now what

AeroVironment has been full of potential for years, but it also has been a volatile stock as it navigated development delays and tried to fulfill that potential. We've seen the company score some big contract wins this year, and the stock is up about 50% year to date.

The stock is expensive for a defense contractor, trading at 65 times earnings. The belief on Wall Street is that over time, AeroVironment can grow into that valuation. Deals like the one for Telerob, which could expand its addressable market, should help AeroVironment get there, and the market is enthusiastic as a result.