Commercial drone technology company AgEagle Aerial Systems, Inc. (UAVS - Get Rating), which is headquartered in Wichita, Kansas, designs and manufactures drones for the precision agriculture industry in the United States and internationally. Its shares have soared 4.9% in price over the past five days thanks to its wholly-owned subsidiary, senseFly’s, inclusion in the Blue sUAS 2.0 List of Drone Suppliers, which was published by the U.S. Defense Innovation Unit earlier last month. However, UAVS’ stock price has tumbled 21.8% over the past three months and 47.7% over the past six months to close the last trading session at $2.87.

Although this leading drone solutions provider’s strategic acquisition of award-winning aerial intelligence solutions company, Measure, has helped improve its revenue in its last reported quarter, its high operational losses have reduced investor interest in the stock. The stock is currently trading below its $3.05 and $5.55 respective 50-day and 200-day moving averages, which indicates a downtrend.

In addition, the company’s share issuances to fund its growth could be worrisome for investors.

Here is what could influence UAVS’s performance in the near term:

Selling Shares

Earlier this year, UAVS entered an at-the-market sales agreement with Stifel, Nicolaus & Company and Raymond James. Under the agreement, the company can sell its common stock from time to time up to $100 million in aggregate sales proceeds in at-the-market transactions. In June, UAVS sold 5.27 million shares priced between $5.02 – $6.30 per share to raise $28.65 million in net proceeds. While the issuance of shares could positively impact its cash flow, equity dilution could hurt its stock price performance.

Heavy Dependence on Acquisitions for Growth

Last month, UAVS acquired senseFly, a Parrot Group wholly-owned subsidiary, in a $23 million cash and stock transaction. The company’s CEO, Brandon Torres Declet, believes that senseFly could accelerate UAVS’ core growth strategy. In addition, the company has acquired MicaSense and Measure to expand its product offerings and cater to more businesses worldwide. Although growth through acquisitions could be a straightforward route for UAVS to generate more revenue, the company hasn’t achieved significant organic growth.

Bleak Financials

For the six months ended June 30,  UAVS’ drone and custom manufacturing sales declined 84% from the prior-year quarter to $59,893. The company’s total operating loss rose 284% year-over-year to $4.82 million during the three months ended June 30, 2021. It incurred a $4.68 million net loss and a net loss per share of $0.07. The company’s total operating expenses grew 361.4% from the prior-year quarter to $5.8 million.

Poor Profitability

UAVS’ trailing-12-month EBITDA margin and net income margin are negative 234% and 240.9%, respectively. Furthermore, its ROE, ROA, and ROTC came in at negative 19.6%, 9.5%, and 12.3%, respectively. And its  0.1% trailing-12-month asset turnover ratio is 91.3% lower than the 0.8% industry average. The company’s negative $5.05 million trailing-12-month cash from operations compares with a $224 million industry average.

POWR Ratings Reflect Bleak Prospects

UAVS has an overall F rating, which translates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. UAVS has an F grade for Quality. This justifies the stock’s negative profit margin.

It has an F grade for Stability, which is in sync with its five-year monthly beta of 4.83. Also, the company has a Momentum grade of C, consistent with its price decline over the past three months.

In addition to the grades we have highlighted, one can check out additional UAVS ratings for Sentiment, Growth, and Value here. The stock is ranked last of the 80 stocks in the B-rated Industrial – Machinery industry.

Click here to check out our Industrial Sector Report for 2021

Bottom Line

Even though UAVS’ recent announcement regarding its wholly-owned subsidiary joining the Blue sUAS 2.0 list has garnered significant investor attention, its negative profit margin and bleak organic growth continue to be significant concerns. Also, because  the company continues to burn cash despite witnessing higher operational losses, its stock price could tumble  further. So, we think it could be wise to avoid the stock now.

How Does AgEagle Aerial Systems (UAVS) Stack Up Against its Peers?

While UAVS has an overall POWR Rating of F, one might want to consider investing in Industrial – Machinery  stocks with an A (Strong Buy) rating, such as Crane Co. (CR - Get Rating) and Tennant Company (TNC - Get Rating).

UAVS shares fell $2.87 (-100.00%) in premarket trading Monday. Year-to-date, UAVS has declined -52.17%, versus a 26.54% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

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