$29.27
-0.46 (-1.55%)
AeroVironment, Inc. (AVAV)
CAPS Rating:
The Company is engaged in the design, development and production of unmanned aircraft systems and energy technologies for various industries and governmental agencies.
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This stock is priced for 20% growth for the next 10 years. That kind of growth rate is hard to sustain in any business, especially defense. Only 6 stocks grew earnings 20% annually over the decade ending in 2005.
So if the valuation is implying 20% growth, it has to do better than that for the stock to make you money. Anything less will result in a lower value.
A couple other dings are the increase in capex and the horrible working capital. The working capital isn't a risk, but the timing is not ideal and it is a use of capital.
Maybe this can become a $3.5 billion business in 10 years (20% growth from here) but a) I wouldn't want to bet on it and b) there is no margin of safety, the stock HAS to do that to justify its current price.
I think its value is closer to the high teens to low 20s, so I would recommend selling.
Andrew, apart from agreement/disagreement, I just wanted to say that I think it's great you're taking the time to do your research, set down your opinions, put them right into action on CAPS, and include your notes and viewpoint in your CAPS pitches. I pitch every I take on CAPS (including replying to my own original pitch when I end a pick). Bravo. Fool on. --David
Hi David!Thanks for reading my post and for the nice reply. Maybe this can be a small test of value vs. growth? We're probably on opposite sides of the fence in our investing approaches so it will be fun to see how it plays out in this case! I agree, the pitches are really valuable. Thanks again!Andrew