Title: Why AeroVironment's Shares Tumbled 16% Today
AeroVironment's stock plummeted by 15.6% before 10:45 a.m. ET on Thursday, following a mixed performance in their Q3 earnings report released the previous night. Analysts projected the company would generate $0.68 earnings per share (EPS) with $181.4 million in sales, but AeroVironment surpassed the sales forecast, reporting $188.5 million. Unfortunately, EPS only reached $0.47, falling short of predictions.
AeroVironment's Q3 Performance
Despite this miss, the company's sales soared by 4%, setting a new record for the manufacturer of small military drones. CEO Wahid Nawabi attributed the revenue growth to the popularity of the company's "loitering munition systems" and a 25% increase in future business backlog.
Sadly, the booming sales came with a drawback. The gross profit margin dropped by 300 basis points to 39%, lamented Nawabi. The chief executive officer pinned the profit decline on an increase in loitering munitions sales.
Worse still, when viewed through the lens of generally accepted accounting principles (GAAP), the company's reported $0.47 EPS was merely a pro forma figure. Actual GAAP profits amounted to a meager $0.27 per share, representing a sizable 59% decrease compared to Q3 of the previous year.
Is AeroVironment Stock a Sell?
Looking ahead, AeroVironment's management projected 2025 sales to hover between $790 million and $820 million, translating to a midpoint of $805 million. This targets a 12% annual growth rate, surpassing Q3's performance.
Regarding profits, the company didn't provide a GAAP-based projection, only estimating pro forma profits to land between $3.18 and $3.49 per share. Given a midpoint of $3.33, this implies an 11% annual profit growth, which falls short of Wall Street's anticipation of $3.42 in EPS.
Consequently, two consecutive quarterly profits misses have caused investor disappointment, resulting in the stock sell-off.
Enrichment Insights:
- Valuation concerns: AeroVironment's stock may be overvalued, and investors might be reconsidering its market position and future growth potential.
- Revenue decline in the UxS segment: The company's Unmanned Systems (UxS) segment experienced a substantial 36% decline in second-quarter revenue, possibly indicating market saturation or increasing competition.
- Mixed earnings report: Manufacturing a mixed performance may have caused investor reassessment and a sell-off.
- Short interest: The high short interest of 2,880,000 shares indicates that several investors are betting against the stock.
- Market sentiment and economic conditions: Overall market trends and investor sentiment can impact stock prices, including AeroVironment's shares.
In light of the Q3 earnings report, investors may want to reevaluate their investment strategies in AeroVironment, considering the miss on EPS and the impact on the company's stock price. Furthermore, the decrease in gross profit margin due to an increase in loitering munitions sales could be a point of concern for financially-minded investors considering future investments in AeroVironment.
