AeroVironment (AVAV +2.00%) stock tumbled 4.6% through noon ET Friday on no obvious bad news. Actually, the contrary: AeroVironment had excellent news just yesterday.
For $186 million, the U.S. Army will order an unspecified number of AV's Switchblade 600 Block 2 and Switchblade 300 Block 20 loitering munition systems armed with explosively formed penetrators (EFP).
AeroVironment investors made the logical choice and bid up this maker of military drones 1.7% yesterday. But today they're taking that money back -- and more. As of this writing, not only is AeroVironment stock below where it traded the day before the contract was announced; it's actually trading back near levels last seen mid-month.
But why?
Image source: Getty Images.
The U.S. Army is looking for a few good drones
Partly, it's probably because yesterday's contract announcement doesn't actually involve AeroVironment getting any "new" money from the Army.
As the company advised, the $186 million order is part of a previous $990 million Pentagon indefinite delivery, indefinite quantity (IDIQ) award that AV received in 2024. The award does confirm the Army's "confidence in the next evolution of the Switchblade family and its relevance to modern, contested battlefields," as AV Senior VP of Loitering Munitions Brian Young asserted.
But it doesn't really add anything to future revenue or future profit.
NASDAQ: AVAV
Key Data Points
Is AeroVironment stock a sell?
That's one reason investors' enthusiasm for AeroVironment stock may be fading. A second reason is valuation.
Priced at $248 a share and with an $18 billion market capitalization, AeroVironment sells for a pricey 150 times trailing earnings right now, and for a price-to-sales ratio of 10.9. That's an extremely expensive valuation for a defense stock -- as I've previously explained -- leading me to conclude that investors are really selling off AV stock for just one reason:
It costs too much.
