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Undervalued AeroVironment Inc. Boasts No Debt And Growing EPS

Check the portfolios of investors who buy into the Aerospace/Defense sector. You'll most certainly find relatively large-cap stocks like The Boeing Company (NYSE: BA) and Lockheed Martin Corporation (NYSE: LMT) dominating them. Most metrics are obviously in their favor such as large market capitalization and high stock price. But, all the good numbers that the capital market offers don't just lurk round large-cap stocks. Several small-cap stocks are out there that often bring better returns than the large-cap plays, one of which is AeroVironment, Inc. (NASDAQ: AVAV). Using some important metrics, I'll show you in this article why AeroVironment is more than just an addition to your watch list; it is a smart buy.

EPS Treasure Trove

On a quarterly basis, AeroVironment has been reporting an increase in its EPS over the past two years, barring first quarter fiscal 2013, a quarter during which the company usually struggles. Its last quarter (second quarter fiscal 2013) witnessed an increase in EPS of about 30 percent. Checking its EPS on a yearly basis will make you appreciate this trend better. In fiscal 2012, AeroVironment's EPS was $1.36. In fiscal 2011, its EPS was $1.17, an increase of about 24 percent compared to the EPS of fiscal 2010. The path AeroVironment is treading so far this fiscal year might see AeroVironment's EPS up by up to 8 percent compared to the EPS of fiscal 2012. EPS is important in determining stock price and as such, increasing EPS often translates to improvement in stock price, which could be the case for AeroVironment, given its recent business activities.

Debt-To-Equity Ratio

This is one metric that most investors rarely consider when they're looking to add to their portfolios. To such investors, what the stock currently has offer is what matters; how it got there is next to trivial. If you're one such investor, here is something you need to know. Perhaps, after this, you'll start seeing this metric as important. When there is a high debt-to-equity ratio, it means that the company in question has financed its growth by going into debt. And it takes large earnings for shareholders to get anything worthwhile from such a company. So if a company, AeroVironment in this case, can expand without having to go into debt, it is a sign of a healthy stock. Earnings of such stocks aren't as volatile, which leaves shareholders with decent returns.


These two metrics are not the only good signals being sent out by AeroVironment. Its net profit margin, which is well above the industry average, is also healthy. Its cash flow is impressive. Having said this, I consider this stock as undervalued and as such, investors might want to consider adding this to their portfolios. If you're in doubt, I think the company's third quarter fiscal 2013 results should set you straight. The results will be released on March 5, 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.