In the classic book “War Is a Racket,” written by Smedley D. Butler in 1935, the author shed light on the cynical nature of industrialists profiting from large-scale human conflicts. While times have changed significantly since then, the opportunities that arise from prolonged military campaigns remain a stark reality. AeroVironment (NASDAQ:AVAV), a specialist in drone technology, exemplifies this trend.
AeroVironment gained prominence, largely due to its Switchblade drone, which played a crucial role in assisting Ukrainian forces as they repelled the initial Russian invasion. It is expected to continue serving as an essential tool as Ukraine presses forward with its counteroffensive.
For many Ukrainians, AeroVironment is not merely a defense contractor; it represents hope and security. The war is not just about safeguarding democracy but also about preserving their very existence. It is essential to clarify that this article is not intended as a criticism of AeroVironment but rather as an observation of the company’s significant role in the battlefield, which has propelled AVAV stock to prominence.
Financial Reports Highlight
Recent financial reports highlight AeroVironment’s success. In its fiscal first quarter of 2024 earnings report released on September 5, the company reported a remarkable 40% growth in its top-line revenue, reaching $152.3 million, and an operating income of $26.4 million. This is a stark contrast to the $3.3 million loss reported a year earlier. Furthermore, the company closed the quarter with a record-funded backlog of $540 million, marking a 27% increase compared to Q4 2023.
Despite these positive developments, some experts, like Barchart’s Will Ashworth, favor Consolidated Water (NASDAQ:CWCO), a Cayman Island-based water company, as a more promising investment based on financial comparisons and a compelling narrative. Nevertheless, the financial markets seem captivated by AVAV stock.
AVAV stock has recently garnered significant attention for its unusual stock options activity. After the close of the September 6 session, the total volume of AVAV contracts reached 9,496, compared to an open interest of 9,079. This represents a remarkable increase of 1,001.62% in volume compared to the trailing one-month average.
Breaking down the options activity, there were 5,257 call contracts compared to 4,239 put contracts, resulting in a put/call volume ratio of 0.81. The put/call open interest ratio, as reported by Barchart, is slightly lower at 0.72.
One intriguing aspect is AVAV’s volatility smile, which indicates implied volatility (IV) at various strike prices. While IV does not provide a directional insight, it reveals increased trading activity at specific strike prices. Notably, AVAV stock exhibits a “smile” pattern, with IV spiking at opposite ends of the strike-price spectrum while remaining low in the middle range. This suggests that traders are actively managing risk, recognizing the potential for extreme price volatility both in-the-money (ITM) and out-of-the-money (OTM) options.
The gradual rise in IV from strike $115 to $165 may reflect traders’ confidence in AeroVironment’s fundamentals. This could be attributed to the company’s strong performance and the recognition of its potential by institutional investors.
Conclusion
In conclusion, considering the data and market sentiment, the question arises: Should you invest in AVAV stock? While acknowledging the risks associated with a stock that has recently surged in value, the enthusiasm of institutional investors for AeroVironment is noteworthy. They possess resources and expertise that most retail investors do not. Additionally, the top five unusual options transactions for AVAV stock on September 6 predominantly consisted of out-of-the-money (OTM) calls, indicating a positive outlook.
While it is essential to approach this investment intelligently, AVAV stock appears to be a reasonable long-term bet for patient investors who see the potential in AeroVironment’s role in the evolving landscape of warfare.
Featured Image: Freepik @ clalinus
Author Faith Yakubu 
