What happened
Drone maker AeroVironment (AVAV 1.67%) delivered mixed results in its most recent quarter, but provided investors with a lot to get excited about in the years to come. The markets responded positively, sending AeroVironment shares up 24% for the week, according to data provided by S&P Global Market Intelligence, as of midday Thursday.
So what
Perhaps no defense contractor has seen its profile raised more by the war in Ukraine than AeroVironment. The company's small drones have been a key part of the U.S. aid package to Ukraine, and the technology has by and large received rave reviews on the battlefield.
The company's latest quarterly results, announced Wednesday after markets closed, reflected both the long-term promise of the business and the near-term issues AeroVironment is having in fulfilling orders. The company lost $0.10 per share in its fiscal first quarter on revenue of $108.5 million, topping the consensus for sales but falling short of the profit that analysts had expected.
Revenue was up 7% year over year, and gross margin improved by nearly 300 basis points to 31%. CEO Wahid Nawabi in a statement highlighted some of the recent wins for AeroVironment, including a new order for its Switchblade drone missile system and its selection as part of a U.S. Army development program, and said the company is by and large "successfully managing" continuing supply chain issues.
"We're excited about the traction we're receiving in the market," Nawabi said. "Even though backlog was flat relative to last quarter, strong August bookings have led to a record funded backlog."
Now what
AeroVironment held firm to its full-year estimate for revenue of between $490 million and $520 million. Wall Street's consensus estimate is well within that range, at $512.27 million.
This has been a volatile stock through much of 2022, with investors excited about the long-term prospects of AeroVironment's systems but unsure about how quickly that potential will translate into new sales.
AVAV EV to EBITDA data by YCharts
The stock, after this week's jump, is up more than 60% year to date, and is valued at a premium not just to the larger defense primes but relative to other more growth-focused defense names like Kratos Defense & Security Solutions as well.
The potential is real, and over time AeroVironment can be a much larger company than it is today. But given the valuation, investors should be warned that it might be difficult for AeroVironment shares to gain additional altitude in the months to come.
