In this article, we’ll be summarizing a bullish thesis posted on VIC covering AeroVironment, Inc. (NASDAQ:AVAV) in October, when the stock was trading at $208.12. Currently, AVAV stock is trading at $194.61, which shows that the stock hasn’t moved much since the publication of this thesis. Nonetheless, AVAV stock is now trading at forward non-GAAP earnings of 69, and the stock is trading at 7.14 times, TTM sales estimates.
With a robust position in the military sector, appealing price relative to peers, and favorable geopolitical tailwinds make AeroVironment an intriguing long opportunity. Specializing on defense equipment, mostly for reconnaissance and surveillance for the U.S. military and allied countries, the company AVAV trades at roughly 40% of that valuation, illustrating its relative undervaluation even though it generates 50% more income than private market darling Anduril, which lately raised money at a $14 billion valuation 25x income run rate.
Having a solid history of securing government contracts, management is thought to be quite informed and committed to the military industry. AVAV’s view is significantly influenced by the geopolitical scene. After decades of underinvestment, nations are giving defense spending top priority in light of current conflicts such the Russia-Ukraine war and concerns in the Middle East. This climate should help to promote a secular increase in world defense budgets, hence helping businesses like AVAV.
Although detractors contend AVAV’s products are commoditized, the military’s faith in their efficacy is shown by the frequent awarding of big U.S. defense contracts, including a $1 billion agreement for Switchblade drones. The thesis also emphasizes possible catalysts including ongoing contract wins, growing investor focus on this rather underused name, and M&A activity as the firm improves its performance.
The main hazards are possible contract battles for AVAV, unanticipated cuts in defense budget, or product performance problems. Supported by its excellent foundations and alignment with the growing worldwide focus on defense, AVAV promises a 30% upside, even with 2026 profits expectations at $180 million and a fair 40x multiple. The thesis holds AVAV as an underpriced option with great expansion possibilities in an unpredictable geopolitical situation.
AeroVironment (AVAV) is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per the third-quarter, 36 hedge funds held AVAV stock compared to the 37 in the previous quarter. Moreover, while acknowledging the potential of AVAV stock as an investment, a few AI stocks hold greater promise for delivering greater returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than AVAV but trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
