On March 5, drone insanity gripped investors. They ran up the stock of drone maker AeroVironment by $6.71, or 21.33%, after the company reported earnings the day before slightly ahead of expectations. Ill-informed investors with stars in their eyes jumped on the chance of making money from commercial drones as the media whipped up the hype. This actually opens up another opportunity, but perhaps not the one they’re thinking.
It was not long ago that Amazon AMZN released a video of a drone delivering a package. Add to that the fact that electric-car marker Tesla TSLA is hot, and AeroVironment is also in the business of making chargers for electric cars, and you’ll see where the enthusiasm comes from.
The Internet is great, in that it allows a lot of information to flow to investors quickly. However, this also becomes a source of pumping stocks irrationally. However, when facts are examined, it is not hard to conclude that Wednesday’s behavior toward AeroVironment AVAV was insane, and the stock should be sold.
Let us start by looking at the chart.
The chart shows the last time AeroVironment stock reached these levels, which was on excitement over news about the use of drones in the Department of Defense. At that time, the PEG ratio was 1.75. Unfortunately, those heady growth projections never materialized, and the stock fell down to earth. The PEG ratio at present is 6.71. What this means is that based on projected growth rates, the stock is very expensive. Full-year 2015 consensus revenue estimate is $254 million compared to full-year 2014 consensus revenue estimate of $246 million. The company trades forward P/E full-year 2015 of about 69…Read more at MarketWatch