Why AeroVironment Stock Just Crashed 15%

Why AeroVironment Stock Just Crashed 15%

AeroVironment (NASDAQ: AVAV) stock fell 15% through 11:50 a.m. ET Thursday despite beating earnings in its fiscal Q4 2024 report last night. Analysts forecast the maker of small military drones would earn $0.22 per share on $188.6 million in quarterly sales. In fact, AeroVironment earned $0.43 per share on sales of $197 million.

Investors are selling off AV stock regardless.

AeroVironment Q4 earnings

Nor are they necessarily wrong to do so. AeroVironment's Q4 earnings come with significant caveats -- and its guidance wasn't great, either. First, the $0.43 in "earnings" that the company reported was of the pro forma variety. When calculated according to generally accepted accounting principles (GAAP), AV's Q4 profit was only $0.22 per share -- exactly what Wall Street predicted -- raising questions about whether the company actually "beat earnings" at all.

Full-year profits were better, $2.18 per share GAAP, and much better than last year's $7.04-per-share loss. But free cash flow for the year remained negative at $7.7 million.

Is AeroVironment stock a buy?

Turning to guidance, AeroVironment management predicts fiscal 2025 revenues between $790 million and $820 million, in line with Wall Street's existing forecast. Assuming AV hits the midpoint of that guidance, it would represent a significant slowdown from fiscal 2024 (in which it grew revenues 33%) to fiscal 2025 (where revenues would grow only 12%). Pro forma profits, furthermore, are likely to fall short of the Street's expected $3.36 per share. AV says earnings will range from $3.18 to $3.49 per share, which is $3.33 at the midpoint.

Last but not least, management noted that its funded backlog (which foreshadows future sales growth) declined from $424 million a year ago to about $400 million as of the end of April -- another indicator of slowing growth for the defense growth stock.

All things considered, I'm not at all convinced AV stock is worth the 50 times forward earnings it currently costs. Investors selling today are probably making the right call.

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 $774,526!*

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*.

See the 10 stocks »

*Stock Advisor returns as of June 24, 2024

Rich Smith 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.