AVAV Underperforms Industry in the Past 3 Months: What Should You Do?

Core Insights - AeroVironment, Inc. (AVAV) stock has declined by 16.4% over the past three months, underperforming the Zacks Aerospace-Defense Equipment industry's growth of 11.1% and the broader Zacks Aerospace sector's gain of 7% [2][8] - Competitors such as Rocket Lab USA, Inc. (RKLB) and Astronics Corporation (ATRO) have shown strong performance, with stock increases of 48% and 62.1%, respectively, during the same period [3][8] - Despite the stock's decline, AeroVironment has secured new defense contracts and anticipates strong sales growth, although it currently trades at a premium valuation [8][19] Industry Performance - The aerospace industry has seen varied performance, with some companies like RKLB and ATRO outperforming AVAV significantly [2][3] - Industry-wide challenges such as labor shortages and supply-chain disruptions are affecting production and financial performance across the sector [5][6] Company Challenges - AeroVironment faces persistent labor shortages that may limit workforce availability, potentially slowing production rates and increasing costs [5] - Supply-chain disruptions are leading to longer lead times and higher procurement costs, which could pressure margins and complicate production planning [6] Growth Prospects - AeroVironment is expanding its defense business through new contracts, including a $75 million task order awarded by the U.S. Air Force [9] - The company is also enhancing its presence in advanced airspace operations, indicating progress in autonomous and advanced air mobility [10] Financial Estimates - The Zacks Consensus Estimate for AVAV's fiscal 2026 sales indicates a year-over-year growth of 143.4%, with fiscal 2027 sales expected to improve by 17.5% [11] - Earnings estimates for fiscal 2026 and 2027 suggest year-over-year improvements of 5.5% and 34.4%, respectively [12][13] Valuation Metrics - AeroVironment's forward 12-month price-to-earnings (P/E) ratio is 62.43X, which is higher than the industry average of 47.26X, indicating a premium valuation [14] - The company's return on equity stands at 3.42%, significantly below the sub-industry average of 13.22%, suggesting less efficiency in converting equity into profits compared to peers [16] Liquidity Position - AeroVironment has a current ratio of 5.08, indicating sufficient capital to meet short-term debt obligations, which is favorable compared to peers [18]