The company will continue production during a contract protest.
The U.S. Army has instructed AeroVironment (AVAV 11.95%) to continue working to fulfill a $990 million order, despite an ongoing protest of the award. Investor are cheering the move, sending AeroVironment shares up 11% as of 2:30 p.m. ET.
U.S. Army gives the green light
AeroVironment is a supplier of small-to-midsized unmanned aerial vehicles (UAV) to the U.S. military and other customers. Its Switchblade loitering munition has been a mainstay in the Ukraine military’s war against Russia.
Last month, AeroVironment was awarded a new contract to produce more Switchblade UAVs. But a protest was filed against the contract, requiring that it be reviewed by the Government Accountability Office (GAO).
Typically, work is suspended during a contract review. But in a regulatory filing, AeroVironment said the U.S. Army has lifted the stop work order. As a result of this lifting, AeroVironment said it would proceed with fulfilling the initial $128 million delivery portion of the contract.
Is AeroVironment stock a buy?
It is important to note that the new directive does not affect the GAO consideration of the protest, and that the award could still eventually be overturned. But if nothing else, the move shows the importance the U.S. Army places on Switchblade systems.
AeroVironment shares trade at about 60 times expected earnings, implying that a lot of this growth is already priced in. The protest, even if unsuccessful, threatened to delay fulfillment of the Switchblade contract and could have derailed future quarters. The U.S. Army’s move helps minimize that risk.
AeroVironment is well positioned, and for long-term-focused investors who can handle volatility, the company is an intriguing growth candidate. But the incident, if nothing else, is a reminder that stocks with high valuations can get knocked off course by the slightest headwind.
Therefore, investors buying in today need to understand AeroVironment stock is not for the faint of heart.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.
