AeroVironment (AVAV)

Aerospace and defense company AeroVironment (NASDAQ:AVAV) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 140% year on year to $454.7 million. On the other hand, the company’s full-year revenue guidance of $1.95 billion at the midpoint came in 2.2% below analysts’ estimates. Its non-GAAP profit of $0.32 per share was 6.7% below analysts’ consensus estimates.

Company Overview

Focused on the future of autonomous military combat, AeroVironment (NASDAQ:AVAV) specializes in advanced unmanned aircraft systems and electric vehicle charging solutions.

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

AeroVironment’s competitors include Northrop Grumman (NYSE:NOC), Lockheed Martin (NYSE:LMT), and Textron (NYSE:TXT).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, AeroVironment’s sales grew at an incredible 24.2% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. AeroVironment’s annualized revenue growth of 36.3% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Products and Services, which are 69% and 31% of revenue. Over the last two years, AeroVironment’s Products revenue (aircrafts, missile systems, satellites) averaged 44.5% year-on-year growth while its Services revenue (maintenance, training, consulting) averaged 121% growth.

This quarter, AeroVironment reported magnificent year-on-year revenue growth of 140%, and its $454.7 million of revenue beat Wall Street’s estimates by 2.8%.

Looking ahead, sell-side analysts expect revenue to grow 89.6% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will spur better top-line performance.

AeroVironment’s high expenses have contributed to an average operating margin of negative 3.5% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out.

Looking at the trend in its profitability, AeroVironment’s operating margin decreased by 9.4 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. AeroVironment’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q2, AeroVironment generated a negative 15.2% operating margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

AeroVironment’s EPS grew at a remarkable 12.2% compounded annual growth rate over the last five years. However, this performance was lower than its 24.2% annualized revenue growth, telling us the company became less profitable on a per-share basis as it expanded.

We can take a deeper look into AeroVironment’s earnings to better understand the drivers of its performance. As we mentioned earlier, AeroVironment’s operating margin declined by 9.4 percentage points over the last five years. Its share count also grew by 93.8%, meaning the company not only became less efficient with its operating expenses but also diluted its shareholders.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For AeroVironment, its two-year annual EPS growth of 7.6% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q2, AeroVironment reported adjusted EPS of $0.32, down from $0.89 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects AeroVironment’s full-year EPS of $2.70 to grow 42.2%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

AeroVironment’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 4.9%, meaning it lit $4.90 of cash on fire for every $100 in revenue.

Taking a step back, we can see that AeroVironment’s margin dropped by 25.6 percentage points during that time. If the trend continues, it could signal it’s in the middle of a big investment cycle.

AeroVironment burned through $146.5 million of cash in Q2, equivalent to a negative 32.2% margin. The company’s cash flow turned negative after being positive in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although AeroVironment has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 2.2%, meaning management lost money while trying to expand the business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, AeroVironment’s ROIC increased by 1.2 percentage points annually over the last few years. its rising ROIC is a good sign and could suggest its competitive advantage or profitable growth opportunities are expanding.

AeroVironment reported $685.8 million of cash and $829.7 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $165.8 million of EBITDA over the last 12 months, we view AeroVironment’s 0.9× net-debt-to-EBITDA ratio as safe. We also see its $19.33 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing AeroVironment beat analysts’ revenue expectations this quarter. We were also happy its EBITDA outperformed Wall Street’s estimates. On the other hand, its EPS missed and its full-year revenue guidance fell short of Wall Street’s estimates. Overall, this was a weaker quarter. The stock traded down 3% to $224 immediately after reporting.

Updated: December 4, 2025 at 10:12 PM EST

When considering an investment in AeroVironment, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

AeroVironment isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was exceptional over the last five years and is expected to accelerate over the next 12 months, its relatively low ROIC suggests management has struggled to find compelling investment opportunities. And while the company’s projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining operating margin shows the business has become less efficient.

AeroVironment’s P/E ratio based on the next 12 months is 63.7x. This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $404.00 on the company (compared to the current share price of $288.50).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.