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Why AeroVironment Stock Climbed 14% in January

Joe Tenebruso, The Motley Fool

What happened

Shares of AeroVironment (NASDAQ: AVAV) jumped 14.3% last month, according to data provided by S&P Global Market Intelligence, after analysts released a bullish report highlighting the drone maker's attractive growth prospects.

So what

Coming into January, AeroVironment's shares were down nearly 40% following sharp declines in October and November. Despite handily beating Wall Street earnings estimates in the second quarter, AeroVironment's stock sold off, as investors appeared to focus more on the company's declining margins.

A military drone

Wall Street is warming up to this drone maker's growth potential. Image source: Getty Images.

Yet in January, investors began to take a more optimistic view of AeroVironment's future profitability. In fact, analysts at William Blair issued an outperform rating on the stock, with a bull-case price target of $105. The research firm expects AeroVironment to be a prime beneficiary of increased military funding for drones, which could rise as much as 15% annually over the next half-decade, according to its estimates. 

Now what

AeroVironment remains one of the best pure plays on the growth of the military drone market, which is likely to enjoy booming demand in the years ahead. Yet even after its January gains and small additional rise so far in February, AeroVironment's stock is still down more than 35% from its 52-week high reached back in September. So it's still possible to acquire the drone leader's shares at a sizable discount to where they were trading just a few months ago.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends AeroVironment. The Motley Fool has a disclosure policy.