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Why AeroVironment Stock Bounced Right Back Today

By Rich Smith – Updated Dec 8, 2021 at 3:21PM

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Wall Street downgrades the stock, and AeroVironment shares go up. Wait. What?

What happened

Shares of defense contractor AeroVironment (AVAV -2.44%) are acting kind of funny today. Barely 24 hours after reporting a big sales miss for its fiscal second-quarter 2022 -- and promising to keep on missing sales estimates all year long -- AV stock is bouncing back from the 27.5% loss it suffered yesterday.

Investors who had sold the stock en masse on Tuesday are turning around and buying it right back on Wednesday. As of 2:50 p.m. ET, AeroVironment stock is up 6.7% -- and you're not going to believe why.

Green up arrow button and red down arrow button.

Image source: Getty Images.

So what

This morning, Wall Street analysts reacted to AeroVironment's bad earnings news by downgrading the stock (Canaccord Genuity) and cutting their price targets as well (R.W. Baird and RBC Capital). As reports, all three analysts pointed to AV's discussion of supply chain (and similar) issues that caused the sales miss as their reason for lowering expectations for the stock.

Baird even went so far as to kick AV while it was down; on top of lowering its price target in response to AV's guidance on future sales and earnings, Baird said that, in its opinion, even the earnings "beat" that AV reported for fiscal Q2 wasn't that impressive and only modest in size.

Now what

Now why are investors reacting to Wall Street's several negative notes by bidding AeroVironment shares up today?

That's the funny thing. Turns out, while analysts were uniformly negative in tone today, all three of them set new price targets on AV stock -- $64 at Canaccord, $65 at RBC, and $72 at Baird -- that were significantly above the $58 share price at which AeroVironment stock closed yesterday!

This, in a nutshell, is why investors are reacting positively to negative reports from Wall Street. Simply put: Mr. Market oversold AeroVironment stock yesterday. As a result, there's now room for the stock to go back up again, and that's why it's doing just that -- going up.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends AeroVironment. The Motley Fool has a disclosure policy.

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