AeroVironment (NASDAQ:AVAV) is a small-cap technology that investors can buy to profit from emerging trends in modern science. Its primary business is building unmanned aircraft systems (drones) for the US military and allied nations. This technology has been critical in the conflicts in Iraq and Afghanistan for surveillance and for targeting missiles. Automation in the military will continue, with spending cuts creating a need for efficiency. Drones have been one of the most successful implementations of modern robotic technology in the military.
However, its recent entry into the electric car market accelerates the growth opportunities for the company. AeroVironment has entered the market for electric car infrastructure. The transition to electric cars is in its nascent stages, but infrastructure such as charging stations will need to be built to make driving an electric car practical.
The company is working with NRG Energy (NYSE:NRG) to build charging stations for electric cars in the Dallas/Fort Worth metro area, and already has built stations in the San Francisco Bay Area and Houston. Growth will consist of expanding into the rest of America's major cities and the highways that link them. Overall, the growth in electric car infrastructure will be the new catalyst for AeroVironment's growth and will be able to counteract any government spending cuts on the military side.
The company's financial strength also separates it from competitors in the robotics electric car industry. The military side of AeroVironment has kept the company profitable, while its main competitors Ecotality (ECTY) and Kandi Technologies (NASDAQ:KNDI) are still struggling with losses and growing pains. Also the company's expansion prospects into military applications and electric car infrastructure is driving an average expected earnings growth rate of 38% over the next five years. With a PEG of 0.7, investors are not overpaying for this growth. AeroVironment also has no debt and, on a discounted cash flow basis, the stock has an intrinsic value of $66-84 per share (depending on factoring 0.25 beta being skewed by one massive down day).
Overall, I maintain this is a great opportunity to buy AeroVironment. The recent pullback was caused by a minor mishap in product testing, which has the stock trading at a value. Technical indicators are crossing on the bullish side, a strong short float makes the stock prime for a short squeeze, the company's fundamentals are strong, and long-term growth in alternative energy and defense contracts for drone technology seem secure.
Disclosure: I am long AVAV.