Why AeroVironment Stock Dropped Today
Key Points
AeroVironment missed on its Q3 earnings report last night.
Guidance through the end of fiscal 2026 looks weak, with sales and earnings both missing analyst forecasts.
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AeroVironment (NASDAQ: AVAV) stock slipped 5% through 11:05 a.m. ET Wednesday after missing on earnings last night.
Analysts forecast the maker of military drones would earn $0.72 per share on sales of $483.9 million in its fiscal Q3 2026. In fact, AeroVironment earned only $0.64 per share, and sales fell far short of expectations: $408 million.
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AeroVironment Q3 earnings
On the surface, this seems pretty bad news -- but it wasn't all bad. Despite "missing" on sales, AeroVironment nonetheless managed to grow its sales 143% year over year.
Less encouraging is the news on profits. AeroVironment not only missed on earnings in Q3. And what it did "earn" was only pro forma profit. When calculated under generally accepted accounting principles (GAAP), AV's result for Q3 was actually a net loss of $3.15 per share.
Year to date, AV has racked up losses of $241 million, and its free cash flow is negative $220 million.
Is AeroVironment stock a sell?
So sales are surging, but profits are nowhere to be seen. How should investors react to this?
On the one hand, continued sales growth seems certain. Management noted it's got a book-to-bill ratio of 1.6 so far this year (which foreshadows more strong sales growth ahead). Guidance is for about $1.9 billion in total sales through the end of this fiscal year, more than twice AV's total sales last year.
There are two problems with this: First, AV's entire guidance range is below analysts' year-end forecasts. Second, it's not enough revenue to turn AV profitable. GAAP losses for the year are still forecast to be at least $4.10 per share, and potentially as bad as $4.44 per share.
To me, AV stock looks like a sell.
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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.
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