AeroVironment, founded by the charismatic Paul B. MacCready (who has since passed away), recently released impressive quarterly results. Sales reached $152 million over the past three months, marking a 40.7% increase compared to the same period last year. Operating profit also rose to $26.4 million.
 
Simultaneously, their order book has reached a record high, now standing at $540 million. This growth is attributed to the fact that nearly all NATO countries and their close allies in the Asia-Pacific region have increased their defense budgets, partly due to the conflict in Ukraine and tensions with China.
 
AeroVironment's two main product categories are in high demand, particularly in Eastern Europe. Lightweight drones, which account for two-thirds of their revenue, have become indispensable reconnaissance tools on battlefields due to their cost-effectiveness and ease of operation.
 
The conflict in Ukraine has also highlighted the intensive use of prowler munitions, often referred to as "kamikaze drones." These highly effective weapons are affordable, easy to deploy, and capable of neutralizing heavy armored vehicles.
 
Over the past decade (2013-2023), AeroVironment has doubled its revenue, and the current double-digit growth rate is directly tied to the geopolitically charged environment.
 
Notably, the company has pursued multiple small acquisitions while maintaining sound financial practices. Their external growth has been largely self-funded, with minimal reliance on debt and only one capital increase—this year, in the context of the acquisition of Tomahawk Robotics.
 
As a result, AeroVironment's balance sheet is exceptionally strong, with cash and accounts receivable covering the entire liabilities, along with well-funded working capital to handle a surge in new orders.
 
Traditionally, the company's valuation has reflected its track record and exemplary management, oscillating around 30 times EBITDA over the past decade. However, despite recent positive news, AeroVironment is currently valued at less than 24 times the EBITDA generated in the past fiscal year and less than 20 times the expected EBITDA for the next year.
 
This valuation appears relatively low for a business with significant barriers to entry, strong interest from institutional and strategic investors, and promising long-term growth prospects.