"This stock's got potential." It's a phrase calculated to spark investor interest, but it's also loaded with multiple meanings. AeroVironment (Nasdaq: AVAV) ought to know.

AeroVironment certainly has the potential to displace Northrop Grumman's (NYSE: NOC) Global Hawk as the king of high-altitude, unmanned surveillance, and to defeat Boeing's (NYSE: BA) Phantom Eye in the contest to build a High Altitude Long Endurance aircraft for the Air Force. It has the potential to expand the use of small- and micro-unmanned aerial vehicles among squad- and platoon-size units among the Army and Marines, and to dominate sales even in the face of competition from Honeywell's (NYSE: HON) T-Hawk. And on the civilian plain, it has the potential to ease the merging onto U.S. highways of fully electric vehicles such as the new electric Ford (NYSE: F) Focus and Nissan (Nasdaq: NSANY) Leaf, as well as Tesla's (Nasdaq: TSLA) anticipated "Model S," by creating a charging infrastructure to "fuel" them.

Yet for all its potential, AeroVironment hasn't done a very good job lately of executing on any of it.

Potential vs. actual
Or at least that's my read on the situation, after reviewing AeroVironment's first quarterly report of fiscal 2011, released this week. Once again, AV has underwhelmed investors with a report of weak revenue growth (1%year-over-year), this time combined with an admission of operating and net losses. Worse still, the sharp revival in free cash flow we saw last quarter was sadly lacking in Wednesday's report. With free cash flow turning negative, the company's rate of annual cash generation dipped to just $19.6 million.

Granted, the stock's price also fell. With analysts predicting long-term annual earnings growth of 25%, and a valuation of about 25 times free cash flow on the stock, you might think this makes for a "potential" profit opportunity in AeroVironment shares -- but I'm not so sure.

Consider: According to AeroVironment, revenue growth this year will fall far short of 25% -- just 10% to 15% is all management can promise us. Worse, operating profit margins on those revenues are expected to slip.

Foolish takeaway
To me, this all adds up to another year of little to no profit growth at AeroVironment -- and little or no chance that this stock will live up to its potential in 2011.