Investors in AeroVironment (AVAV 0.73%) are seeing their confidence in the drone maker pay off, and still see plenty of potential up ahead. Shares of AeroVironment surged by 20.9% in March, according to data provided by S&P Global Market Intelligence, and hit a new all-time high after the company reported a strong quarter and boosted full-year guidance.
Potential is turning into profits
AeroVironment makes unmanned aerial vehicles (UAVs) for the U.S. military and other customers. It is an area that has been the focus of military buyers for years, but the actual value of the platforms has been on display in Ukraine, helping to accelerate the push by the Pentagon and its allies to stock up on UAVs.
As a result, sales are surging. In March, AeroVironment reported fiscal third-quarter earnings that nearly doubled Wall Street's consensus estimates on a per share basis on revenue that was up 39% year over year. For the period, which ended Jan. 27, net cash from operations swelled to $26.9 million, up from $8.6 million in the prior-year period. AeroVironment also finished the quarter with a funded backlog of $462.8 million in future business, giving investors some clarity about what they could expect in the quarters to come.
The company also raised its full-year revenue guidance for the second consecutive quarter. Management now expects revenue of between $700 million and $710 million for the year, up from the range of $645 million to $675 million it forecast back in September.
Is AeroVironment stock a buy after hitting all-time highs?
For years, AeroVironment was the rare higher-risk/higher-reward stock in a sector of mostly steady and slow-growth defense stocks. Over the last year, we've seen a lot of that potential play out in increasing sales, helping to push the stock forward.
We're still early in the UAV revolution, and AeroVironment has carved out a niche supplying small to mid-sized units for military customers. But there is also a lot of competition out there, especially for larger, higher-margin defense platforms.
With AeroVironment currently trading at more than 50 times expected earnings, a lot of future expected growth is arguably already priced into the shares. This has always been a high multiple stock, but its valuation post-earnings report is significantly above where it has traded for most of the past few years.
Investors with positions in the stock would be wise to hold on and let this story play out. But for those interested in buying in, I'd recommend patience. AeroVironment has historically been a volatile stock with plenty of ups and downs.
Those who add AeroVironment to their portfolios now should expect some turbulence in the shares. If history is any guide, there will likely be better opportunities to buy the stock in the months to come.
