AeroVironment (NASDAQ: AVAV) stock took off like a rocket Wednesday morning, rising by 16.5% through 10:15 a.m. ET, after the Pentagon announced the company's single biggest contract win ever.
The news led Tuesday night's press release listing the biggest Defense Department contracts awarded that day: $990 million awarded to AeroVironment "to provide an organic, stand-off capability to dismounted infantry formations capable of destroying tanks, light armored vehicles, hardened targets, defilade and personnel targets."
What AeroVironment won
Admittedly, that language is a bit vague. What it probably refers to, though, are Pentagon purchases of Switchblade 600 "loitering munition systems" (aka, kamikaze drones). Featuring "high-precision optics, over 40 minutes of loitering endurance, and an anti-armor warhead for engaging larger, hardened targets at greater distances," this drone seems tailor-made for the mission described in the Pentagon's press release.
$990 million is a lot of money. Based on data from S&P Global Market Intelligence, it's 38% more revenue than AeroVironment received for every product and service it sold last year, combined. But it's important to put this news in context: This contract will be fulfilled over the next five years, so you really need to divide that number by five.
In other words, this contract gives AeroVironment an extra $198 million in annual revenue over the next five years.
Is AeroVironment stock a buy?
That's still pretty great news for AeroVironment stockholders. Adding $198 million to the $717 million AV raked in over the past year implies a sales growth rate of 28% on top of whatever growth it was going to have before winning this contract. (Hint: For 2025, S&P data forecast the company's sales growth at about 14%).
Long story short, AV's growth rate probably just multiplied from 14% to 42% -- all because of one contract. Admittedly, trading at a valuation of 8.2 times trailing sales and roughly 99 times trailing earnings, AeroVironment stock still looks expensive to me.
But thanks to this contract, the stock looks less expensive today than it did yesterday.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
