What happened

Agriculture drone manufacturer AgEagle Aerial Systems (NYSEMKT:UAVS) is gaining altitude again, up as much as 19% on Wednesday morning before falling back some. The stock has more than doubled in the first few weeks of 2021 on little company-specific news, a trend that shows no sign of reversing at this moment.

So what

It's hard to say what to make of AgEagle, a company with a lot of potential but so far not much to show for it. AgEagle generated $750,325 in revenue in the third quarter last year, and $1.16 million in the first nine months of 2020. That's up 1,700% year over year for the quarter and up 974% for the nine-month period, but seemingly not nearly enough to justify AgEagle's $750 million market capitalization.

A drone hovers over a field.

Image source: Getty Images.

Just a year ago, AgEagle was a penny stock, valued by the market at less than $10 million. That all changed last year when speculation began to build that the company was working with Amazon on a retail delivery drone, helping put the stock on a lot of investor radar screens.

Nothing has come of that Amazon talk yet, but AgEagle shares have also gotten a boost from larger drone maker AeroVironment's planned acquisition of Arcturus UAV. That's a reminder that there is potential for consolidation among drone makers, especially as defense contractors trying to broaden their portfolios and gain new expertise.

UAVS Chart

UAVS data by YCharts

Now what

There is no way to use numbers to justify AgEagle's valuation. The company needs to generate substantial growth in the quarters to come, or the stock rally will likely be unsustainable.

AgEagle in a September investor presentation noted drones remain a "highly fragmented industry comprised largely of start-ups or companies with less than $5 million in annual revenue." Count AgEagle among them, but as the company notes very few are publicly traded and with nearly $25 million in cash at their disposal. There are likely deals to be done if AgEagle wants to buy growth in the months ahead.

Otherwise, we are going to have to see real traction with the e-commerce delivery drone talk to even begin to justify the current stock price. It's possible, but given the uncertainty I'd advise investors watch this story play out from the sidelines.

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.