Unmanned aerial vehicle maker (and producer of Posicharge
fast-charging systems for electric cars)
is scheduled to report fiscal Q1 2015 earnings after the market
close on Monday, August 25 . With less than a week to go
before earnings, investors are wondering: Is it better to buy
AeroVironment stock ahead of earnings, or wait for the news to
arrive before deciding?
As for me, I choose door number two.
AeroVironment's Raven small spy drone. Fly! Be free! Photo:
What came before
If it feels to you like AeroVironment just
, and that earnings coming 'round again in just two weeks seems a
little too quick -- don't worry. You're not wrong. In fact,
AeroVironment just finished reporting earnings for Q4 of last
fiscal year in July . (This isn't unusual. The past several
years saw similarly quick turnarounds). And if this month's
report is anything like last month's, investors could wind up
very pleased indeed.
AeroVironment's Q4 report featured 36% revenue growth, a
significant uptick in a year when full-year earnings grew only
5%. Q4 2013 losses were transformed into a profit, and for the
full fiscal year, AeroVironment grew earnings by 32% -- with a
nice gain in free cash flow to boot.
Where's AeroVironment at today?
Today, this leaves the stock trading for 53 times "GAAP" earnings
and 33 times free cash flow. Relative to the average P/E of other
niche defense companies within the aerospace/defense products and
services industry (19.5), these numbers seem high.
Granted, AeroVironment does appear to have stronger growth
prospects than its peers. According to analysts polled by
, AeroVironment is likely to grow earnings at about 14% annually
over the next five years. The aerospace/defense products and
services industry as a whole is expected to produce less than 12%
annualized earnings growth over the same time period,
according to Yahoo! Finance.
But are AeroVironment's mere two percentage points-worth of
excess growth worth paying a P/E ratio
higher than the average in its industry? That almost seems a
What comes next?
The real kick in the gut for AeroVironment investors, of course,
is the risk that as overvalued as the stock looks today, it could
soon look even more overpriced -- perhaps as soon as this
upcoming earnings report. Here's why:
When last we heard from management,
AeroVironment was warning
that fiscal 2015 (that's the year we're in now) sales are likely
to run between $250 million and $270 million. If accurate, this
prediction suggests a best-case scenario of revenues growing only
7% this year, and a worst-case scenario of revenues actually
slipping below last year's performance ($252 million).
Management expects its "core business" to be
gross-profitable off this level of revenues, but with the caveat
that "investments in tactical missile systems, commercial UAS,
and [the company's experimental "Global Observer" high-altitude,
long-endurance hydrogen-fueled spyplane] will increase operating
expenses." The net result "may" be that profitability in the core
business of selling drones and charging station will be "largely
offset" by R&D costs in areas of hoped-for future growth.
Or in other words: After a strong performance in fiscal 2014,
AeroVironment's profits could be slim-to-none this coming year.
Given this risk, I think prudent investors should avoid buying
the stock -- at least until after earnings come out, and we've
got a clearer picture of when AeroVironment's long-term
Warren Buffett: This new technology is a "real threat"
At the recent Berkshire Hathaway annual meeting, Warren Buffett
admitted this emerging technology is threatening his
biggest cash-cow. While Buffett shakes in his
billionaire-boots, only a few investors are embracing this
new market which experts say
will be worth over $2 trillion
. Find out how you can cash in on this technology before the
crowd catches on, by jumping onto one company that could get
you the biggest piece of the action.
to access a FREE investor alert on the company we're
calling the "brains behind" the technology.
Like these drones, is AeroVironment stock "grounded" for the
Is It Time to Buy AeroVironment Stock?
originally appeared on Fool.com.
has no position in any stocks mentioned. The Motley Fool
recommends AeroVironment. The Motley Fool owns shares of
AeroVironment. Try any of our Foolish newsletter services
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a