The recent downturn in the stock of drone maker AeroVironment (AVAV) has raised concerns among investors, particularly as the company’s shares have plummeted 32% from their all-time high. Once a pioneer in the autonomous aerial vehicle sector, AeroVironment is now facing intensified competition as various tech and defense firms ramp up their investments in the autonomous vehicle arena.
Despite these challenges, investors who bought shares a year ago have largely benefited, with AeroVironment’s shares climbing 46.6% over the past 12 months. This performance stands in stark contrast to the broader market, where the S&P 500 has increased by 14.2%. However, the journey has not been straightforward. The stock initially fell by 45% in April but subsequently soared to over $400 a share by October, reflecting a 112% gain before returning to its current price of approximately $279.46.
Examining the performance over a more extended period reveals even more promising results. For those who purchased AeroVironment stock three years ago, the investment has rocketed by an impressive 203.8%, significantly outpacing the S&P 500’s 70% return in the same timeframe. Even when considering a total return basis, which accounts for dividend reinvestment, the S&P 500’s return was limited to 76.8%, further highlighting AeroVironment’s robust performance.
However, the five-year return figures are somewhat unexpected. AeroVironment’s stocks have appreciated 222.8% over this period, only slightly ahead of its three-year performance, largely due to a rough patch in 2021 when the stock declined while the broader market thrived. At that time, the S&P 500 enjoyed a significant gain of 88.3%, or 101.6% on a total return basis, demonstrating the comparative strength of the overall market against AeroVironment’s earlier struggles.
AeroVironment’s stock witnessed a resurgence following the Russian invasion of Ukraine in February 2022, when the critical role of drones in modern warfare became painfully apparent. This international conflict highlighted the strategic importance of drones, leading to increased interest from investors.
In summary, while AeroVironment currently faces pressure from increased competition, its historical performance suggests that the long-term outlook remains bright, particularly for those who hold their investments through market volatilities. This case illustrates how maintaining shares in a high-quality company during pivotal moments can lead to substantial, market-leading returns.
