AeroVironment stock: Here’s why AVAV is pumping after earnings

AeroVironment stock price surged in the extended hours, paring back some of the recent losses, after the company announced strong financial results amid the ongoing demand for drones. AVAV shares jumped by over 20%, its best daily performance this year. It reached a high of $168 from the year-to-date low of $135. 

AeroVironment stock jumps after earnings

AVAV, a smaller player in the defense industrial complex, published results and guidance that were relatively better than expected. This growth was driven by the ongoing demand for drones, which have become essential in modern warfare. It is also benefiting from the rising demand for counterdrones and more space technologies.

Its fourth-quarter revenue jumped by 30% to $641 million, bringing the annual figure to $1.98 billion. Its EBITDA and its margin jumped to 22%, while the amount of backlog jumped to over $1.2 billion. This means that it has a book-to-bill ratio of 1.4.

Most importantly, the company boosted its forward guidance and now expects that its revenue will be between $2.13 billion and $2.23 billion. The upper side of the guidance was higher than the estimated $2.17 billion.

AeroVironment is set to benefit from the recent demand for drones, with the US Department of Defense budgeting to spend over $75 billion in the next financial year. 

Officials have been surprised by the success that companies like Iran and Ukraine have achieved in the battlefield. Iran has been able to destroy US equipment worth billions of dollars using drones that cost less than $50,000 to make.

READ MORE: Cramer: AeroVironment is drone name 'the US government favours'

Most recently, Ukraine has caused havoc in Russia, where it has targeted tens of locations, including refineries and factories. In a statement, the CEO said:

“Not only the U.S. Department of War, but all of our allies are behind the eight ball in terms of adoption and deployment. Now we’re playing catch-up. Our military is playing catch-up in a very fast pace.”

AeroVironment’s main challenge is that the industry is becoming highly competitive as companies seek to take advantage of this theme. Anduril has already achieved a $61 billion valuation by focusing on these drones. Other companies seeking to gain market share in the industry are Shield AI, Neros Technologies, and Firestorm Labs. In March, Shield AI raised $240 million at a $5.3 billion valuation.

Another key challenge for AeroVironment is that its business has become relatively overvalued, with its forward price-to-earnings ratio rising to 48.

AVAV stock price analysis

AeroVironment stock chart | Source: TradingView

The weekly chart shows that the AVAV share price has remained in a bear market in the past few months. This is in line with what we predicted. It has dropped from a record high of $418 last year to a low of $139. It then rebounded in the extended hours, reaching a high of $167. 

The stock remains below the 61.8% Fibonacci Retracement level. It has also dropped below all moving averages. This rebound happened after the stock retested the key support level that connected the lowest swings since January 2022.

Therefore, the stock will likely continue rising, potentially to the key resistance at $250. A break below the ascending trendline will invalidate the bullish outlook and point to more gains.