On a generally good Monday for the stock market, AeroVironment (NASDAQ: AVAV) was a notable exception. The specialized defense company saw its share price sink by almost 10% that day, due to a work stoppage on a very lucrative arrangement between the company and the U.S. government. By contrast, the S&P 500 index, largely free of such burdens, inched 0.1% higher on the day.
Drone dispute
AeroVironment, which focuses on developing and manufacturing combat drones such as the popular Switchblade, disclosed in a regulatory filing that a protest has been filed with the U.S. government against the Army’s current Switchblade contract with the company. As a result of this action, the Army issued a stop work order on the contract.
The protest, filed with the federal Government Accountability Office (GAO), is currently being considered by that organization. The company expects the GAO to render a decision on the matter by Dec. 16.
At the end of August, the Army awarded an indefinite-delivery, indefinite-quantity contract for Switchblade systems to AeroVironment. The contract, the completion date for which is Aug. 26, 2029, has a ceiling value of $990 million.
The company took pains to add that the Army stop work order has no impact on its other business.
Hoping the stoppage will stop
The reasoning for the protest is not yet apparent. As the contract was concluded on a sole-source basis — i.e., it’s been determined that AeroVironment is the only entity capable of satisfying its requirements — the protesting party could feel another defense contractor (or contractors) is able to perform the work.
Regardless, this is at least a hiccup in a highly critical, and very lucrative, deal for AeroVironment. Hopefully for the company and its shareholders, it’ll soon be resolved in their favor.
Should you invest $1,000 in AeroVironment right now?
Before you buy stock in AeroVironment, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and AeroVironment wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $729,857!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 16, 2024
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
Why AeroVironment Stock Dived by 10% Today was originally published by The Motley Fool
