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Anatomy of Success: AeroVironment (AVAV)

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Stocks that boast a Zacks Rank #1 (Strong Buy) title have a long and demonstrable history of outperforming the market over a one to three-month time period. And, this unique ranking is only bestowed upon the top 5% of all stocks within the Zacks Rank universe.

Not only does this stock-picking system help identify the most elite stocks, but it also enables investors to hold a particular company while shares continue to gain in value beyond that three-month investment horizon.

Below is an example that shows investors how they could have realized an almost 90% gain in less than a year by following the Zacks Rank.

AeroVironment Inc. (AVAV - Free Report)

AeroVironment is a company known for its Unmanned Aircraft Systems (better known as drones). It focuses primarily on the design and development of these systems, as well as tactical missile systems that provide situational awareness, multi-band communications, force protection and other mission effects. AeroVironment supplies its drones to the U.S. Department of Defense, including the U.S. Army, Marine Corps, Special Operations Command, Air Force, and Navy.

Last October was when AVAV was first added to the #1 (Strong Buy) list. Earnings of 29 cents was a nice beat over the Zacks Consensus Estimate of a loss of 7 cents per share. Revenues hit $73.8 million and grew 47% year-over-year thanks to an increase in the company’s UAS and EES sales. Income from operations also saw improvement from the prior-year period, reaching $9.3 million. At the closing bell that day, the company’s stock price was $53.21 per share.

The next time AeroVironment was added to the top-ranked list was a few weeks before it reported its fourth quarter fiscal 2018 results in early May, most likely due to analyst bullishness. The report was a strong one: earnings of 85 cents easily beat the Zacks Consensus while revenues of $117 million were positively benefited by an increase in service revenue. For the fiscal year, revenues and diluted EPS were up 18% and 32%, respectively, from the previous year. Eight months after first appearing on the #1 list, shares hadn’t seen that much movement, only moving 6% higher to $56.48 per share.

AVAV was added to the Strong Buy list a third time on September 7 after reporting first quarter fiscal 2019 that surpasses estimates on both the top and bottom line. Revenues grew 127% from the year-ago period thanks to a $36.5 million increase in product sales and a $7.1 million increase in service revenue. Gross margin hit $32.6 million, growing 275% year-over-year; as a percentage of revenue, gross margin increased to 42% from 25%. Patient investors finally got their reward 11 months after first becoming a #1 pick: AVAV stock just skyrocketed after this report, and shares were up nearly 90% to $100.43.

Right now, AeroVironment is still hanging on to its #1 title, and is trading around $120 per share, up almost 147% in the past one-year period.

This table shows the price performance of AVAV, as well as the 12-month forward looking EPS estimate from around the time the stock first earned a Zacks Rank #1 (Strong Buy). During this stretch, AVAV never moved lower than a Zacks Rank #3 (Hold).

By utilizing the Zacks Rank, investors are able to easily identify elite stocks that are best positioned to beat the market on a consistent basis, and how to hold those top stocks as they continue to grow.

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