AeroVironment (AVAV): Valuation in Focus After Securing $95.9M U.S. Army Missile Contract

AeroVironment (AVAV) saw its shares climb after being chosen by the U.S. Army for a $95.9 million contract under the Long-Range Kinetic Interceptor program. This highlights its emergence in military missile production.

This contract focuses on developing and delivering the Freedom Eagle FE-1, a counter-drone missile aimed at enhancing battlefield defenses. The company’s selection signals a shift in the defense sector as AeroVironment steps into a market long led by established missile manufacturers.

See our latest analysis for AeroVironment.

AeroVironment's momentum has really gathered pace this year, driven by back-to-back contract wins and expanded international partnerships. The stock’s latest surge follows a string of notable events, including new collaborations on advanced unmanned aircraft for allied forces and the rollout of next-gen tactical software for the U.S. Army. With a year-to-date share price return of 142.97% and a 1-year total shareholder return of 72.16%, AeroVironment's move from niche drone builder to key defense supplier is resonating with investors looking for both rapid growth and industry credibility.

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But after such a rapid climb, does AeroVironment’s current valuation offer more room for upside? Or has all the future growth already been accounted for in its soaring share price?

Most Popular Narrative: Fairly Valued

With AeroVironment’s last close at $380.13 and the narrative’s fair value estimate holding steady at $384 per share, the two are nearly neck and neck. This suggests the market is closely tracking the popular outlook. The narrative hinges on transformative catalysts beyond mere headline growth.

The company's strategic focus on developing modular, interoperable, and software-defined platforms, including the newly launched AV Halo open software ecosystem, directly aligns with the accelerating adoption of AI-powered autonomy and network-centric warfare. This enables future premium pricing, increased service revenues, and gross margin expansion as these high-value platforms are deployed at scale.

Read the complete narrative.

How do analysts pencil in a premium valuation for a company still turning losses? There is a game-changing expectation about profit margins and future growth lurking behind this price. Discover which bold forecast drives these numbers.

Result: Fair Value of $384 (ABOUT RIGHT)

Have a read of the narrative in full and understand what's behind the forecasts.

However, AeroVironment’s progress could stall if U.S. defense funding priorities shift suddenly, or if integration setbacks from recent acquisitions squeeze future margins.

Find out about the key risks to this AeroVironment narrative.

Another View: Price Ratios Raise Eyebrows

Looking through the lens of price-to-sales, AeroVironment stands out as expensive. Its current ratio of 17.4x is far higher than the peer average of 7.6x and the US Aerospace & Defense industry at 3.2x. With a fair ratio at just 5.8x, this gap suggests investors could be paying a premium, adding valuation risk if growth expectations stumble. Will the company’s momentum justify that premium, or could the market demand a reset?

See what the numbers say about this price — find out in our valuation breakdown.

Build Your Own AeroVironment Narrative

If you see the story differently or want to dig deeper, you can quickly assemble your own view with fresh data and insights in just a few minutes, Do it your way.

A great starting point for your AeroVironment research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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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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