AeroVironment Inc (NASDAQ:AVAV), a aerospace & defense company based in United States, received a lot of attention from a substantial price movement on the NasdaqGS in the over the last few months, increasing to $58.64 at one point, and dropping to the lows of $46.01. This high level of volatility gives investors the opportunity to enter into the stock, and potentially buy at an artificially low price. A question to answer is whether AeroVironment’s current trading price of $50.14 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at AeroVironment’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change. See our latest analysis for AeroVironment
What’s the opportunity in AeroVironment?
According to my relative valuation model, the stock is currently overvalued. I’ve used the price-to-equity ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 37.78x is currently well-above the industry average of 21.37x, meaning that it is trading at a more expensive price relative to its peers. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Since AeroVironment’s share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What does the future of AeroVironment look like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -18.84% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for AeroVironment. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? If you believe AVAV is currently trading above its peers, selling high and buying it back up again when its price falls towards its real value can be profitable. Given the uncertainty from negative growth in the future, this could be the right time to de-risk your portfolio. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping tabs on AVAV for some time, now may not be the best time to enter into the stock. Price climbed passed its industry peers, in addition to a risky future outlook. However, there are also other important factors which we haven’t considered today, such as the track record of its management. Should the price fall in the future, will you be well-informed enough to buy?
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on AeroVironment. You can find everything you need to know about AeroVironment in the latest infographic research report. If you are no longer interested in AeroVironment, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.