Why Unusual Machines Stock Popped, Then Dropped

Key Points

• Unusual Machines makes drones and drone parts for other drone manufacturers.

• This morning Unusual announced an $800,000 order from Red Cat Holdings.

• 10 stocks we like better than Unusual Machines ›

Unusual Machines (NYSEMKT: UMAC) stock soared more than 15% in early trading Friday, before turning around and giving back most of its gains.

As of 10:10 a.m. ET, UMAC shares are still up, but only 3.1%.

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Introducing Unusual Machines

Unusual Machines describes itself as a maker of drones and drone components for both consumers and the military. The company sells branded "Fat Shark" ultra-low latency video goggles for drone pilots, as well as "small, acrobatic FPV drones."

This morning, Unusual Machines announced it has won an $800,000 order from military drone maker Red Cat Holdings (NASDAQ: RCAT). Red Cat is buying Unusual Machines' "Aura Analog Camera, Aura VTX, Brave Flight Controller, Brave ESC, HDO+ Goggles, and motors, that will be integrated into Red Cat's FANG drones."

Is Unusual Machines stock a buy?

Ever since the war in Ukraine upended how military conflicts are fought, investors have been clamoring for pure-play ways to invest in military drones. Stocks such as AeroVironment (NASDAQ: AVAV), for example, have done very well indeed (up about 570% since the war in Ukraine began), but AV is not currently profitable, and it's burning cash.

This leaves an opening for new drone entrants to potentially capture investor attention with the prospect of building smaller, cheaper drones -- and maybe earning a profit on them.

I'm not yet convinced that investing in Unusual Machines is the right way to play this, however. It's unprofitable (it lost $39.5 million over the past year) and burning cash, and it isn't going to turn profitable anytime soon by booking drone orders for under $1 million -- and analysts see it losing money for the next few years at least.

Unusual Machines remains a sell for me.

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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.