The stock of AeroVironment (NAS:AVAV, 30-year Financials) appears to be modestly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock 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. At its current price of $112.5 per share and the market cap of $2.8 billion, AeroVironment stock is estimated to be modestly overvalued. GF Value for AeroVironment is shown in the chart below.
Because AeroVironment is relatively overvalued, the long-term return of its stock is likely to be lower than its business growth, which averaged 15.1% over the past three years and is estimated to grow 18.40% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company’s financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company’s financial strength. AeroVironment has a cash-to-debt ratio of 29.08, which ranks better than 86% of the companies in Aerospace & Defense industry. Based on this, GuruFocus ranks AeroVironment’s financial strength as 7 out of 10, suggesting fair balance sheet. This is the debt and cash of AeroVironment over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. AeroVironment has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $394.1 million and earnings of $1.24 a share. Its operating margin is 11.89%, which ranks better than 76% of the companies in Aerospace & Defense industry. Overall, the profitability of AeroVironment is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of AeroVironment over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of AeroVironment is 15.1%, which ranks better than 83% of the companies in Aerospace & Defense industry. The 3-year average EBITDA growth is 28.8%, which ranks better than 83% of the companies in Aerospace & Defense industry.
One can also evaluate a company’s profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). 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. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, AeroVironment’s ROIC is 18.94 while its WACC came in at 3.83.
In conclusion, The stock of AeroVironment (NAS:AVAV, 30-year Financials) is believed to be modestly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 83% of the companies in Aerospace & Defense industry. To learn more about AeroVironment stock, you can check out its 30-year Financials here.
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