Why AeroVironment Stock Took Flight and Climbed 15% This Week
Key Points
AeroVironment's counter-drone technology made headlines last week.
One Wall Street analyst initiated coverage with a buy rating and defended the stock's pricey valuation.
AeroVironment is riding strong secular tailwinds, but investors should exercise care with this highflier.
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Shares of AeroVironment (NASDAQ: AVAV) were trading sharply higher this week, jumping as much as 17.2%, according to data supplied by S&P Global Market Intelligence. After the market close on Thursday, the stock was still up 15.5%.
The catalysts that sent the drone maker higher were reports that the company's cutting-edge counter-drone technology was deployed at a U.S. airport earlier this week, sparking some attention from Wall Street.
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High-profile deployment
El Paso International Airport made headlines last week when the Federal Aviation Administration (FAA) abruptly closed the airspace around the highly traveled airport. Officials cited a drone incursion from neighboring Mexico.
Later, conflicting reports surfaced suggesting that the U.S. military or U.S. Customs and Border Protection had deployed counter-drone lasers, prompting the shutdown. The technology in question was AeroVironment's LOCUST counter-drone direct-energy laser weapons system.
In the wake of this development, JPMorgan Chase analyst Seth Seifman initiated coverage of AeroVironment stock with an overweight (buy) rating and a $320 price target. At the time of the analyst's call on Tuesday, that represented 31% upside potential, but the stock has since closed the gap.
Seifman noted that AeroVironment operates in high-growth areas of defense, including drones, counter-drone systems, and space. He went on to cite rising defense budgets and geopolitical risks to justify the company's premium valuation.
The analyst has a point. At 173 times earnings and 82 times forward earnings, AeroVironment stock certainly fetches a lofty valuation. As a leader in next-generation warfighting technology, the company is well-positioned to prosper, but investors should exercise caution with this highflier.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Danny Vena, CPA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment and JPMorgan Chase. The Motley Fool has a disclosure policy.
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