"Valuation? Humbug. Logic? We don't need no stinkin' logic. Just look at that stock go!"

If Applied Energetics (NASDAQ:AERG) shareholders were thinking anything yesterday morning, and not just reacting to the ticker, I suspect their thoughts went a little bit like that. And let's face it: Who wouldn't be excited to see his or her stock shoot up as much as 40% in a day, especially after watching it rise 8% the day before?

Why did it happen? The jump boils down to a single contract announcement. On Wednesday, Applied Energetics (which you may recognize better under its old moniker, "Ionatron") announced that it has won a cost-plus contract worth as much as $9.3 million to develop "a classified system for the U.S. Marine Corps." The stock promptly blasted off.

Stop. Think.
But is that a reasonable reaction to the news? The numbers suggest not. AE shares have risen $0.52 from their pre-announcement close on Tuesday. Multiply that by 80.6 million shares outstanding, and you'll find that the stock is now worth $42 million more than it was worth earlier this week.

All that on a $9.3 million contract … that may not even be worth $9.3 million, because that number is the "ceiling value" of the award. And even if it does max out, that refers to $9.3 million in revenue -- not profit.

So basically, investors just anted up 4.5 times forward sales on the new contract alone, and infinity times profits -- because for as long as it's been in business, AE has never made a profit, no matter how much it booked in sales. You have to admit that this seems a little delusional. AE's closest publicly traded analog, Motley Fool Rule Breakers recommendation TASER (NASDAQ:TASR), fetches roughly four times estimated sales for this year -- and TASER's earnings are profitable. Meanwhile, more traditional "defense" companies such as Boeing (NYSE:BA) and Northrop (NYSE:NOC) both have price-to-sales ratios much lower than TASER and Applied Energetics, based on estimated revenue for this year.

Today's price spike is exciting, sure. But not all that's exciting is wise. Or Foolish.

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