Why AeroVironment Shares Are Flying Higher Today

The US military issued instructions AeroVironment (AVAV 11.55%) to continue working to fulfill a $990 million order despite the ongoing protest over the award. Investors are cheering the move, sending AeroVironment shares up 11% as of 2:30 p.m. ET.

The US military gives the green light

AeroVironment is a supplier of small and medium-sized unmanned aerial vehicles (UAVs) to the US military and other customers. Its “Switchblade” ammunition has been a mainstay in the Ukrainian 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, calling for it to be reviewed by the Government Accountability Office (GAO).

Work is usually suspended during contract review. But in a regulatory filing, AeroVironment said the U.S. military has lifted the stop-work order. As a result of this lift, AeroVironment said it would continue to fulfill 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 GAO’s consideration of the protest and that the award could ultimately be reversed. But if nothing else, the move shows the importance the US military places on Switchblade systems.

Shares of AeroVironment are trading at about 60 times expected earnings, implying that much of that upside is already priced in. The protest, while unsuccessful, threatened to delay fulfillment of the Switchblade contract and could have derailed future quarters. The US military’s move helps minimize that risk.

AeroVironment is well positioned, and for long-term focused investors who can handle volatility, the company is an interesting growth candidate. But the incident, if nothing else, is a reminder that highly valued stocks can be swayed by the slightest headwind.

Therefore, investors buying today should understand that AeroVironment stock is not for the faint of heart.