With AeroVironment Inc (AVAV, Financial) experiencing a substantial daily gain of 9.03%, and an impressive 3-month gain of 43.63%, investors are taking notice. Yet, amidst this upward trend, the company reports a Loss Per Share of 4.31. This raises a crucial question for value investors: is AeroVironment significantly overvalued? This article delves into a valuation analysis to provide clarity on AeroVironment's current market standing. Continue reading for an insightful exploration of the company's financials and intrinsic value.
Company Introduction
AeroVironment Inc operates in a niche market, providing unmanned aircraft systems, tactical missile systems, and related services primarily to the United States Department of Defense and allied international governments. These systems are pivotal for security, surveillance, and sensing operations, offering "eyes in the sky" without the need for human pilots. When compared to the GF Value, which estimates the fair value of a stock, AeroVironment's current stock price suggests a disconnect that warrants a closer examination.
Summarize GF Value
The GF Value is a proprietary measure, indicating the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If AeroVironment's stock price is significantly above the GF Value Line, it suggests overvaluation and a potential decrease in future returns. Conversely, a price below the GF Value Line could indicate undervaluation and the possibility of higher future returns. AeroVironment's stock price of $182.25, with a market cap of $5.10 billion, appears significantly overvalued when aligned with the GF Value.
Given this significant overvaluation, the long-term return of AeroVironment's stock may fall short of its future business growth projections.
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Financial Strength
Investors must consider a company's financial strength to avoid the risk of permanent capital loss. AeroVironment's cash-to-debt ratio of 0.91, which ranks in the upper half of its industry, and an overall financial strength rating of 8 out of 10, suggest a robust financial position.
Profitability and Growth
AeroVironment has consistently maintained profitability over the last decade, an appealing attribute for investors. With a revenue of $705.80 million and a Loss Per Share of $4.31, its operating margin of 7.11% is competitive within the industry. The company's profitability rank is 7 out of 10, indicating a fair level of profitability. Growth is also a vital aspect of valuation, and AeroVironment's average annual revenue growth of 12.3% outpaces a significant portion of its peers.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another method to assess a company's profitability. AeroVironment's ROIC of 6.11 is currently below its WACC of 8.44, suggesting that the company may not be creating value for shareholders at this time.
Conclusion
In summary, AeroVironment (AVAV, Financial) appears to be significantly overvalued based on current market prices. The company boasts a strong financial condition and fair profitability, but its growth comparison within the Aerospace & Defense industry is less impressive. For a more detailed look at AeroVironment's financials, consider reviewing its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
