After soaring 10% over the course of the past week, shares of unmanned aerial vehicle (UAV) maker AeroVironment (NASDAQ:AVAV) have finally settled on a cruising altitude north of $30 -- near an all-time high. What's got investors so up on AV? That's what we're here to find out.

A year's pay, in one day
Basically, it all boils down to one deal. Last week, AV landed a contract to produce its new Puma AE small UAV for the U.S. Special Operations Command (USSOCOM). The indefinite delivery, indefinite quantity contract kicks off with an initial delivery of $6 million worth of Puma AE's. If the initial one-year contract gets maxed out, and if the four one-year follow-on options are exercised in full, however, the contract could go as high as $200 million in value.

So basically, AV could get its entire last year's revenue out of this single contract. Not bad for a day's work, and good enough for a 10% bump in stock price.

Back up a sec. Puma who?
OK, a bit of background. You already know the Puma. Weighing in at 12 pounds and with a wingspan of 8.5 feet, it's AV's biggest "small" AV -- nearly twice as big as the Raven, and nearly four times as large as the Wasp. Yet as AV assures me, the Puma is still small enough that it can be launched by hand. (Actually, I'm thinking two hands is more likely.)

To date, the Raven and Wasp have been getting all the glory. The Puma has showed up only rarely -- for example, in a March conference call in which its Aqua Puma variant was said to be unsalable, but could give rise to a more successful product. That product, it would appear, is the Puma AE.

While AV keeps mum on the new UAV's exact specs, what we do know is that it is of similar size and weight, but improves on the original Puma by being able to land on water as well as land, and carrying a more advanced "payload" -- a stabilized camera that can watch a single point and remain fixed on it while in motion. Thanks largely to these features, AV has notched its fourth consecutive competitive contract win in the UAV space.

The competition
Management remains coy as to just whom it's competing with when winning these contracts. But that doesn't mean we can't do some educated guesswork -- and as investors, we really do need to keep an eye on the competition. A bit of clicking around Wikipedia turns up nearly a dozen AV rivals of various shapes and sizes, including such disconcertingly vaunted names as "MIT" and "CalTech." Among publicly traded companies, however, the most formidable competition appears to come from:

  • Lockheed Martin (NYSE:LMT), whose seven-pound Nerf-like UAV, the Desert Hawk, has enjoyed some success.
  • Honeywell (NYSE:HON), with its even more successful 18-pound "Micro Air Vehicle."
  • Raytheon (NYSE:RTN), which is working on a small "parasite" UAV called "SilentEyes," to be deployed from larger UAVs such as the Predator.

The price
If AV has an Achilles' heel for investors, it has to be the stock price. For whatever reason, most large defense contractors tend to gravitate to a price-to-sales ratio of 1.0. Name any defense shop you like -- Boeing (NYSE:BA), Lockheed, L-3 (NYSE:LLL), Raytheon, Textron, or General Dynamics (NYSE:GD) -- and you'll find that almost of them sell within a range of 0.7 to 1.3 times sales. Meanwhile, at nearly three times sales after the recent run-up, AV stock comes much dearer.

Foolish takeaway
Now, in AV's defense, management believes that it can grow sales and earnings at 20% to 25% per year for the foreseeable future, and CEO Timothy Conver assures us that "doing what we say continues to be a core value of the company." That growth rate beats out most of AV's competition by a factor of two, which should mitigate at least some of the price risk in AV's stock -- if AV can keep the growth going.

Contract wins like the Puma AE's success last week suggest that it can.

Further defensive Foolishness:

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.