Shares of AeroVironment (NASDAQ: AVAV) Shares were up 6.7% this morning through 10:20 a.m. ET. Even if there are no upgrades, earnings announcements, or other obviously good news for AV, that makes sense. Along the East Coast of the US, and into inland Ohio, headlines are dominated by stories of mysterious unidentified flying objects (UFOs) that appear to be unmanned aerial vehicles (UAVs).
America is inundated with drone reports. And AeroVironment is America’s best-known manufacturer of drones for the US military.
According to a recent NBC News count, unidentified drones – maybe Chinese, maybe Russian, maybe strangeror perhaps no drones at all – have been reported as far south as Florida, as far north as New York, and as far west as Ohio. The online rumor mill is in full swing, with some theorizing that there is an Iranian drone mothership based off the east coast, unleashing waves of drones night after night.
Of course the Pentagon says this is nonsense, but that doesn’t matter. People are worried, and even those who aren’t worried are fascinated by the story. It makes perfect sense that this would increase investor interest in a drone stock leader like AeroVironment.
Whether all this interest makes AeroVironment a stock worth buying is another question. Just two weeks ago, AeroVironment reported third-quarter earnings, with revenue growth of just 4% and profit down nearly 60%. Still the stock still costs more than 90 times earnings, which is quite a lofty valuation for a 4% grower with declining revenues.
What better way to play off the drone frenzy and the increasing calls for the government to “do something about it”? Consider investing in a defense stock that focuses on countering drone threats, such as RTXa leader in the production of radars to detect drones in flight, or Lockheed Martinmaking the Morfius system a “counter UAS” to defeat drone swarms.
Both are more logical solutions to the drone threat, and with a price-to-earnings ratio of 33 and 18 respectively, they’re both also a lot cheaper than AeroVironment stock.
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