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Why Shares of AgEagle Aerial Systems Are Flying High Today

By Lou Whiteman - Jan 12, 2021 at 11:12AM

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The dronemaker got a contract, but it isn't the one investors have been excited about.

What happened

Shares of AgEagle Aerial Systems ( UAVS 8.90% ) climbed 13% on Tuesday morning after the drone maker announced a licensing deal with the state of Iowa. Investors have flocked to the stock over the past year on the promise they see in its drone platform, and the company is going to have to deliver contracts to justify that belief.

So what

AgEagle said in a statement the Iowa Department of Agriculture and Land Stewardship has licensed the company's HempOverview platform to manage the state's online registration, payment processing, data collection, and compliance of hemp cultivation for the 2021, 2022, and 2023 planting seasons.

A drone flying over field at sunset.

Image source: Getty Images.

The platform, which is already used by Florida, allows the state and registered hemp growers to collect and share data on plantings and crop development. Terms of the deal call for AgEagle to receive development fees and an ongoing revenue share of the fees collected by the state.

Now what

AgEagle didn't provide an estimate of how much money the deal would bring in. But given the company generated just $1.16 million in revenue in the first nine months of 2020, it seems probable that the Iowa deal will be enough to move the needle.

It's less clear that the stock reaction is justified. A year ago, AgEagle was a penny stock, valued by the market at less than $10 million. The stock today is worth more than $400 million, largely thanks to speculation that the company was working with Amazon to develop an e-commerce delivery drone.

AgEagle execs have said they are working with a major e-commerce customer, but so far have had little more to say on who it is or what exactly is going on. The company has expanded its operations in Wichita, Kansas, which could imply it sees a rapid expansion in demand for its drones on the horizon, but so far there is a lot more speculation than concrete evidence that something big is in the works.

The stock is up more than 1,300% over the past year, and today trades at more than 180 times sales. There is no way a collection of agriculture monitoring contracts can justify such a valuation, and even if there is a significant e-commerce partner that we will hear about soon a lot of the potential benefit appears to be baked into the price already. Investors should stay on the sidelines until there is more evidence to go along with the talk.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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