Investors have the opportunity to buy blue-chip stocks that generally pay dividends and generate stable cash flows. These stocks move in line with the broader market and are ideal for those seeking stable returns.

Alternatively, investors can also buy and hold growth stocks that expand revenue and earnings at a rapid pace. Generally, these companies outpace major indices in a bull market but experience significant declines when sentiment turns bearish.

There are several industries that are in a nascent stage and poised for exponential growth in 2022 and beyond. One such industry is drones.  Today I’ll analyze and compare two drone stocks, Red Cat (RCAT - Get Rating) and AgEagle Aerial Systems (UAVS - Get Rating), to determine which one is currently a better buy.

Red Cat

Valued at a market cap of $113 million, Red Cat stock is trading 70% below 52-week highs. The company announced its fiscal third quarter of 2022 (ended in January) last week and reported revenue of $1.85 million, a decline of 13% year over year. Comparatively, its operating expenses soared to $3.2 million compared to $1.1 million in the year-ago period.

Red Cat explained the revenue declined as it focused efforts to expand manufacturing capacities for the Teal subsidiary. Its operating expenses surged higher due to the acquisitions of Teal and Skypersonic.

Despite the revenue decline, sales were up 64% year over year in the first three quarters of fiscal 2022. Red Cat ended the quarter with $56 million in cash and a debt balance of $3.34 million.

In addition to doubling Teal’s manufacturing capacity, Teal Drones was selected by the U.S. Army for its short-range drone program. It was also awarded a customs and border protection contract worth $90 million. Further, Skypersonic partnered with NASA to deploy remotely piloted drones across vehicles and environments.

AgEagle Aerial Systems

A company that designs, develops, produces, and distributes unmanned aerial vehicles for the precision agriculture industry, AgEagle Aerial Systems is valued at a market cap of $95 million. The stock has lost 81% from 52-week highs, burning investor wealth in the process.

AgEagle reported sales of $2.02 million in Q3 of 2021, which was an increase of 169% year over year. The revenue growth was driven by sales of its proprietary sensor and software solutions. Its net loss however expanded to $3.77 million or $0.05 per share, compared to a loss of $579,000 or $0.01 per share in the year-ago period.

Its sales grew by 389% year over year to $5.66 million in the last three quarters, while gross profit margin improved by 260 basis points to 49% in this period.

The verdict

We can see that both Red Cat and AgEagle are high-risk bets given they are micro-cap companies with inconsistent sales. However, the two entities have enough cash to sustain current burn rates in the foreseeable future. I believe Red Cat is a better bet due to its lower valuation, better revenue visibility and major contract wins.

RCAT shares were trading at $2.21 per share on Friday morning, up $0.01 (+0.45%). Year-to-date, RCAT has gained 6.25%, versus a -4.38% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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