Why AeroVironment Stock Got Shot Down Today

Why AeroVironment Inventory Received Shot Down Right this moment

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AeroVironment (AVAV -9.79%) inventory, the maker of unmanned aerial automobiles for the U.S. navy, delivered a formidable “beat and lift” quarter final night time, reporting each higher earnings than anticipated and promising extra of the identical.

Heading into AV’s fiscal Q2 2024, analysts had forecast the corporate would earn solely $0.62 per share on gross sales of $171 million. As a substitute, AV delivered $0.97 per share in revenue, and reported gross sales of $181 million.

After which its inventory crashed 10.8% (by way of 11:30 a.m. ET).

Wait. What?

Sure, you learn that proper. This tiny protection contractor AeroVironment beat Wall Road’s earnings predictions with a stick, after which went on to boost earnings steering by way of the tip of this 12 months as nicely. (The low level of AV’s new steering vary of $2.46 to $2.70 per share is definitely above the midpoint of Wall Road’s forecast, $2.45 per share). However traders are promoting the inventory anyway.

The query is, why?

Q2 gross sales surged 62% 12 months over 12 months. Earnings grew 366% 12 months over 12 months. And CEO Wahid Nawabi says AV is seeing “rising demand” for its merchandise, driving steering for $685 million to $705 million in income this 12 months (a 29% soar), with optimistic earnings enormously improved over final 12 months’s $7-plus-per share web loss.

Perhaps I am going blind, however I do not see a variety of dangerous information in any of that.

Aside from one factor

It is solely after studying by way of AeroVironment’s total press launch, that I believe traders lastly discover the reply to the query: May these numbers not be fairly nearly as good as they seem?

Manner down within the press launch, after all of the prose and deep throughout the firm’s money move assertion, we study that each one of AV’s fabulous income development and its spectacular return to “earnings” ended up producing $35.7 million in destructive free money move by way of the tip of the corporate’s fiscal first half —  really a worse end result than the $24.1 million in optimistic free money move it had generated by way of fiscal H1 2023.

And I am afraid what this implies is that, regardless of the income development and reported earnings, AeroVironment inventory remains to be at present heading in the right direction to report its third straight 12 months of destructive free money move. And suffice it to say that an organization that may’t generate sufficient money to fund its operations internally might be an organization that does not deserve a $3.5 billion market capitalization — and a inventory that does not should be promoting for greater than $127 a share.

Lengthy story quick, regardless of “beating earnings,” “elevating steering,” and customarily doing all of the issues proper that traders want to see their shares do on earnings day, AV inventory nonetheless prices greater than it ought to. And traders who’re promoting AV inventory right now are making the suitable name.

Wealthy Smith has no place in any of the shares talked about. The Motley Idiot has positions in and recommends AeroVironment. The Motley Idiot has a disclosure coverage.

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