Has AeroVironment’s 88.9% 2025 Surge Put Its Valuation on Shaky Ground?

• Wondering if AeroVironment is a hidden gem or priced to perfection? You are not alone, as plenty of investors are eyeing its recent action for signs of value.
• The stock's seen a wild ride: after surging an impressive 88.9% year-to-date, it has pulled back by 10.0% in the last week and an even bigger 26.4% over the past month.
• Recent headlines have spotlighted AeroVironment's expanding role in global defense and innovative unmanned systems, fueling optimism on one hand but also heightening debates about its current valuation levels. Market chatter reflects how fast-changing geopolitical events can shift sentiment for companies in this sector almost overnight.
• Currently, AeroVironment scores just 1 out of 6 on our undervaluation checks. Let’s dig into how that result is reached using several valuation approaches, and why there may be an even better way to judge true value by the end of this article.

AeroVironment scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: AeroVironment Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model projects a company's future cash flows and then discounts them back to their value in today's dollars, providing an estimate of what the company is actually worth right now. Essentially, it attempts to calculate the present value of anticipated future earnings.

For AeroVironment, the latest twelve months (LTM) Free Cash Flow comes in at -$193.8 Million, indicating a recent dip below positive territory. Looking ahead, analysts estimate that Free Cash Flow will reach $234.6 Million by the fiscal year ending April 2028. While analyst consensus covers about five years out, Simply Wall St extends projections for a decade with forecasts rising to $605.7 Million by 2035. This model uses what is called the Two-Stage Free Cash Flow to Equity approach to account for different growth phases.

With all projections considered, the DCF calculates AeroVironment's intrinsic value to be $184.09 per share. However, comparing this to the company’s current share price suggests the stock is trading at a 60.5% premium to fair value, making it significantly overvalued according to this method.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests AeroVironment may be overvalued by 60.5%. Discover 875 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for AeroVironment.

Approach 2: AeroVironment Price vs Sales

The price-to-sales (P/S) ratio is often a valuable yardstick for assessing companies like AeroVironment, especially when profitability is less stable but strong revenue growth and market positioning are in play. This metric compares a company's market value to its total sales, offering a quick snapshot of how much investors are willing to pay for each dollar of revenue.

It is important to remember that a company’s growth prospects and risk profile will shift what counts as a “normal” or fair valuation multiple. All else being equal, faster growing companies or those with less risk tend to deserve a higher multiple, while slower growing or riskier firms should trade at a lower P/S ratio.

Right now, AeroVironment's P/S ratio is 13.53x. To put this in context, the broader Aerospace & Defense industry averages just 3.01x, and AeroVironment’s listed peers trade at a mean of 6.23x. This suggests the stock is commanding a substantial premium versus its sector and competitors.

To dig deeper, Simply Wall St uses a Fair Ratio metric for the P/S ratio, factoring in AeroVironment’s growth outlook, profit margins, industry trends, market cap, and any material risks. Unlike a simple comparison to peers or industry averages, the Fair Ratio offers a more tailored and rigorous benchmark for the company in its current context.

For AeroVironment, the Fair Ratio stands at 5.78x, which is well below the present P/S of 13.53x. This significant gap signals that, even after accounting for the company’s strengths and growth potential, the stock still appears overvalued using this approach.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1401 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your AeroVironment Narrative

Earlier, we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is simply the story you believe about a company, connecting what you think will happen in its future to numbers like revenue, margins, and fair value that reflect your specific outlook.

Narratives help make investing more approachable and personal by letting you link your perspective on AeroVironment’s future to financial forecasts and valuation, right inside the Simply Wall St Community page. Millions of investors use Narratives to update their view as new news, contracts, or earnings come in, ensuring their investment decisions keep pace with fresh information.

The real power of Narratives is that they frame buy or sell decisions against the current market price. If your Narrative produces a higher fair value than today’s price, AeroVironment might be a buy; if it shows a lower value, it could be time to hold off or sell. For example, one investor might believe recent defense wins and tech leadership justify the highest analyst target of $335, while a more cautious Narrative could point to execution and competition risks that align with the $225 low target. With Narratives, you can quickly make sense of the numbers and see how your expectations stack up against other investors, all dynamically updated as the story evolves.

Do you think there's more to the story for AeroVironment? Head over to our Community to see what others are saying!

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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