AeroVironment Inc (AVAV, Financial) recently experienced a daily gain of 28.71%, with a 0.12% gain over the last three months. Despite a Loss Per Share of 6.95, the question arises: is the stock fairly valued? This article aims to provide a comprehensive analysis of AeroVironment's valuation, encouraging readers to delve into the following sections for a deeper understanding.
Company Introduction
AeroVironment Inc (AVAV, Financial) operates as a single business segment, supplying unmanned aircraft systems, tactical missile systems, high-altitude pseudo-satellites, and related services to government agencies within the United States Department of Defense and allied international governments. The company's systems provide security, surveillance, and sensing capabilities, offering "eyes in the sky" without the need for a person or driver in the sky.
Comparing the stock price with the GF Value, an estimation of fair value, paves the way for a more profound exploration of the company's value. This approach ingeniously integrates financial assessment with essential company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance.
The GF Value Line on our summary page provides an overview of the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, AeroVironment (AVAV, Financial) appears to be fairly valued. The stock's fair value is estimated considering three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $122.65 per share, AeroVironment has a market cap of $3.20 billion, indicating that the stock is fairly valued.
As AeroVironment is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's essential to carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can provide a good initial perspective on the company's financial strength.
AeroVironment has a cash-to-debt ratio of 0.82, which ranks better than 53.82% of 288 companies in the Aerospace & Defense industry. Based on this, GuruFocus ranks AeroVironment's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. AeroVironment has been profitable 8 over the past 10 years. Over the past twelve months, the company had a revenue of $540.50 million and a Loss Per Share of $6.95. Its operating margin is -4.19%, which ranks worse than 74.47% of 282 companies in the Aerospace & Defense industry. Overall, GuruFocus ranks the profitability of AeroVironment at 7 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of AeroVironment is 12.3%, which ranks better than 76.92% of 260 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 228 companies in the Aerospace & Defense industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, AeroVironment's return on invested capital is -2.85, and its cost of capital is 8.21.
Conclusion
In summary, the stock of AeroVironment (AVAV, Financial) gives every indication of being fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 0% of 228 companies in the Aerospace & Defense industry. To learn more about AeroVironment stock, you can check out its 30-Year Financials here.
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