2 Reasons to Like AVAV and 1 to Stay Skeptical

What a fantastic six months it’s been for AeroVironment. Shares of the company have skyrocketed 62%, hitting $254.26. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now still a good time to buy AVAV? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Does AVAV Stock Spark Debate?

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Two Things to Like:

1. Skyrocketing Revenue Shows Strong Momentum

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, AeroVironment’s sales grew at an incredible 17.4% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

AeroVironment’s EPS grew at a remarkable 12.4% compounded annual growth rate over the last five years. This performance was better than most industrials businesses.

One Reason to be Careful:

Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, AeroVironment’s margin dropped by 22 percentage points over the last five years. If the trend continues, it could signal it’s in the middle of a big investment cycle. AeroVironment’s free cash flow margin for the trailing 12 months was negative 2.9%.

Final Judgment

AeroVironment’s positive characteristics outweigh the negatives, and with the recent surge, the stock trades at 65.9× forward P/E (or $254.26 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than AeroVironment

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