Headquartered in Virginia, AeroVironment, Inc. (AVAV - Get Rating) is a global pioneer in intelligent, multi-domain robotic systems, serving defense, government, and commercial clients. It offers technological solutions at the convergence of robots, sensors, software analytics, and networking that enable more actionable intelligence to Proceed with Certainty.

The company’s shares have gained 33.3% year-to-date to close its last trading session at $82.68. Of the four Wall Street analysts that rated AVAV, three rated it Buy, and one rated it Hold. The 12-month median price target of $97.00 indicates a 17.3% potential upside. The price targets range from a low of $90.00 to a high of $103.00.

However, the stock is down 14.6% over the past year and 17.7% over the past three months. The company’s most recent quarter fell short of Wall Street’s estimates. CEO Wahid Nawabi stated that the performance was impacted by “ongoing macroeconomic challenges.” He added, “During the quarter, the firm continued to suffer supply chain restrictions and a tight labor market.”

Here’s what could shape AVAV’s performance in the near term:

Premium Valuation

In terms of forward EV/Sales, the stock is currently trading at 4.17x, 161.7% higher than the industry average of 1.59x. Also, its forward Price/Sales of 3.95x is 218.1% higher than the industry average of 1.24x. Moreover, AVAV’s trailing-12-month Price/Book of 3.32x is 41.4% higher than the industry average of 2.35x.

Inadequate Financials

AVAV’s revenue decreased 2.5% year-over-year to $132.62 million for the fourth quarter ended April 30, 2022. Its income from continuing operations declined 26.7% from the year-ago value to $13.01 million. 

The company’s net income decreased 33.7% from the prior-year quarter to $7.26 million. In addition, its cash and cash equivalents came in at $77.23 million, representing a year-over-year decline of 48.1%.

Negative Profit Margins

AVAV’s trailing-12-month EBITDA margin of 11.7% is 11.5% lower than the industry average of 13.2%. Also, its trailing-12-month ROA, ROC, and net income margin are negative 0.46%, 0.66%, and 0.94%, respectively. Moreover, its trailing-12-month asset turnover ratio of 0.48% is 38.9% lower than its industry average of 0.79%.

POWR Ratings Reflect Bleak Outlook

AVAV has an overall D rating, which equates to Sell in our proprietary POWR Ratings system. The POWR ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. AVAV has a D for Value and Stability. The stock’s higher-than-industry valuation is consistent with the Value grade. In addition, the Stability grade shows AVAV’s higher volatility than its peers.

Of the 77 stocks in the C-rated Air/Defense Services industry, AVAV is ranked #58.

Beyond what I’ve stated above, you can view AVAV ratings for Sentiment, Growth, Momentum, and Quality here.

Bottom Line

AVAV’s widening losses and lofty valuations are concerning. In addition, the company continues to struggle with macroeconomic challenges, which have weighed on its performance. Furthermore, analysts expect its EPS to decline by 66.7% in the next quarter ending October 2022. So, we think the stock is best avoided now.

How Does AeroVironment, Inc. (AVAV) Stack Up Against its Peers?

While AVAV has an overall D rating, one might want to consider its industry peers, Moog Inc. (MOG.A - Get Rating) and Innovative Solutions and Support Inc. (ISSC - Get Rating), which have an overall A (Strong Buy) rating.

AVAV shares were unchanged in premarket trading Thursday. Year-to-date, AVAV has gained 33.29%, versus a -16.15% rise in the benchmark S&P 500 index during the same period.

About the Author: Pragya Pandey

Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...

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