AeroVironment, Inc. (AVAV): A Bull Case Theory

Core Thesis - AeroVironment, Inc. (AVAV) is positioned for significant growth driven by a transformation in U.S. defense procurement and a strong demand for unmanned systems [2][3][4] Company Performance - As of December 2nd, AVAV's share price was $264.95, with trailing and forward P/E ratios of 149.83 and 138.89 respectively [1] - Following the acquisition of BlueHalo, AVAV's revenue surged 140% year-over-year to $454.7 million, with a record funded backlog of $1.1 billion [3] Market Dynamics - The Pentagon's shift towards scalable, low-cost autonomous systems, supported by the Replicator program and a defense memorandum, indicates a generational change in defense procurement [2][3] - The FY2025 defense budget allocates $10.1 billion to unmanned vehicles and over $1.7 billion to Counter-Unmanned Aerial Systems (C-UAS), areas where AVAV is now deeply entrenched [3] Valuation and Growth Potential - Despite temporary losses reflected in GAAP results, underlying profitability remains strong, with expectations for margin expansion as amortization decreases [4] - AVAV's current valuation at 7.7x P/S is significantly lower compared to peers Anduril and Shield AI, which trade at 30x and 20x P/S respectively, indicating clear undervaluation [4] - Based on FY28 EPS estimates of $6 and a justified forward P/E of 65x, a target price of $390 is suggested, reflecting a re-rating opportunity as AVAV evolves into a next-generation defense technology leader [4] Historical Context - Since a previous bullish thesis in January 2025, AVAV's stock price has appreciated approximately 64.55%, driven by the company's leadership in the expanding global drone market amid rising geopolitical tensions [5]