Shares of AeroVironment (NASDAQ: AVAV) stock soared 6.7% through 10:20 a.m. ET this morning. Even in the absence of upgrades, earnings announcements, or other obviously good news for AV, that makes sense. Up and down the U.S. East Coast, and as far inland as Ohio, headlines are dominated by stories of mysterious unidentified flying objects (UFOs) that appear to be unmanned aerial vehicles (UAVs).
America is being overrun by drone reports. And AeroVironment is America’s best known manufacturer of drones for the U.S. military.
According to a recent tally from NBC News, unidentified drones — maybe Chinese, maybe Russian, maybe alien, or maybe not even 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 going wild, with some hypothesizing an Iranian drone “mothership” based off the East Coast, unleashing waves of drones night after night.
The Pentagon says this is bunk, of course, but no matter. People are worried, and even those who aren’t worried are fascinated by the story. It makes perfect sense 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. Barely two weeks ago, AeroVironment reported third-quarter earnings showing sales growth of just 4% and earnings down nearly 60%. Yet the stock still costs more than 90 times earnings, which is kind of a lofty valuation for a 4% grower with declining earnings.
What’s a better way to play the drone frenzy, and mounting calls for the government to “do something” about it? Consider investing in a defense stock that focuses on countering drone threats, such as RTX, a leader in manufacturing radars to detect drones in flight, or Lockheed Martin, which makes the Morfius “counter-UAS” system to defeat drone swarms.
Both are more logical solutions to the drone threat, and at P/E ratios of 33 and 18, respectively, they’re both a lot cheaper than AeroVironment stock, too.
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