AeroVironment, Inc.'s (NASDAQ:AVAV) 37% Jump Shows Its Popularity With Investors

Simply Wall St ·  Mar 6 05:16

AeroVironment, Inc. (NASDAQ:AVAV) shareholders have had their patience rewarded with a 37% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 83% in the last year.

After such a large jump in price, you could be forgiven for thinking AeroVironment is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.6x, considering almost half the companies in the United States' Aerospace & Defense industry have P/S ratios below 2.1x. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

NasdaqGS:AVAV Price to Sales Ratio vs Industry March 6th 2024

What Does AeroVironment's Recent Performance Look Like?

AeroVironment certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on AeroVironment.

What Are Revenue Growth Metrics Telling Us About The High P/S?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like AeroVironment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 45% gain to the company's top line. Pleasingly, revenue has also lifted 79% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the five analysts covering the company suggest revenue should grow by 11% per annum over the next three years. That's shaping up to be materially higher than the 7.9% each year growth forecast for the broader industry.

In light of this, it's understandable that AeroVironment's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does AeroVironment's P/S Mean For Investors?

AeroVironment's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into AeroVironment shows that its P/S ratio remains high on the merit of its strong future revenues. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you take the next step, you should know about the 1 warning sign for AeroVironment that we have uncovered.

If you're unsure about the strength of AeroVironment's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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