What happened

Shares of drone-maker AeroVironment (NASDAQ:AVAV) have soared in 2021, thanks in no small part to its association with red-hot investment firm Ark Invest. But Tuesday has been a tough day for Ark-related stocks, and AeroVironment is feeling the pressure, trading down as much as 11.4% on a difficult day on Wall Street.

So what

AeroVironment is a maker of small- to mid-sized drones that are primarily used by the military. The stock has been a slow-but-steady performer in recent years, but jumped 32% higher in January.

The company announced an acquisition in the month, but also seemed to benefit from its association with exchange-traded funds (ETFs) run by Cathie Wood's Ark Invest.

A soldier launches a hand-held AeroVironment drone.

Image source: AeroVironment.

Tuesday is a tough trading day for high-growth tech names, especially the ones that are part of Ark Invest investment vehicles, as investors fret the company could be forced to sell some of its holdings if there's an uptick in selling of its ETFs. Overnight, Ark sold a small portion of its AeroVironment shares, which seems to have triggered concern that more selling could follow in the days to come.

Now what

Even with the selling, AeroVironment is still up more than 40% in the last six months. That's a healthy move, and the market currently values the company at more than 90 times earnings.

AeroVironment's recent acquisitions should add to its addressable market and boost sales over time. But even without the Ark drama playing out on Wall Street, the valuation looked stretched for a defense contractor.

This is a good company with strong long-term prospects, but investors should be warned that the current volatility on Wall Street will likely mean a bumpy ride for AeroVironment right now.

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.