AVAV stock double bottoms as AeroVironment earnings loom

AeroVironment stock has rebounded to a crucial resistance level as traders waited for the upcoming earnings, which will shed more color on its growth amid the rising competition in the drone industry. AVAV jumped to $200, its highest swing on July 20th this year.

AeroVironment stock has bottomed

The daily chart shows that the AVAV stock formed a double-bottom pattern on $137.76 and a neckline at $200. This pattern means that short sellers are afraid of placing positions below that level.

The stock has rebounded above the 50-day Exponential Moving Average (EMA), a sign that bulls have regained control. At the same time, the Relative Strength Index (RSI) has jumped and is nearing the overbought level of 70. Other oscillators like the MACD and the Stochastic have continued rising. 

Therefore, these technicals suggest that the stock will continue rising, with the next key target to watch being at $250. This view will be confirmed if it moves above the neckline of $200. 

AVAV stock chart | Source: TradingView

AeroVironment earnings to shed color on growth

AVAV stock has rebounded in the past few weeks, mirroring the performance of other companies in the military-industrial complex like RTX and Lockheed Martin.

These firms have benefited from the ongoing ramping up of production as the US-Iran and UK-Russia wars continue. President Donald Trump has called for the US to boost military spending to $1.5 trillion. The budget for drones is expected to hit $75 billion.

AeroVironment, which makes key autonomous vehicles or drones for the military, has benefited from the rising demand. The challenge, however, is that this business is seeing substantial competition from companies like Anduril, General Atomics, Northrop Grumman, and Shield AI.

Its results, which comes after the market closes today, will provide more information about its growth. 

Yahoo Finance data shows that analysts expect modest growth in this report. The average estimate is that its revenue rose by just 1.15% in the June quarter to $459 million. The most optimistic analyst sees the revenue rising to $512 million.

For the year, analysts estimate that its revenue will jump by 10.7% to $2.19 billion, helped by its $4.1 billion BlueHalo acquisition. This buyout merged its uncrewed aerial system with BlueHalo’s expertise in space technology and electronic warfare. 

The upcoming results will provide more demand on its backlog, which jumped to $1.2 billion. Its autonomous systems business had a $492 million backlog, high than the expected $402 million.

Analysts are largely mixed about the AVAV stock, with some expecting it to keep soaring and others predicting a steeper retreat. For example, KeyCorp, Citigroup, and William Blair have reiterated their bullish outlook, while Citizens and Canaccord Genuity slashed the outlook. 

One of the reasons for the concerns is that the company is highly overvalued, with its forward price-to-earnings ratio of 59, higher than the S&P 500 Index’s estimate of 20. It is also much higher than other defense companies like RTX and General Dynamics.