AeroVironment: down 60% from the peak, and still above fair value

AeroVironment makes the Switchblade loitering munition and the Puma and Raven drones, and since buying BlueHalo in 2025 it also sells space, directed energy, cyber and counter-drone systems. Backlog is at a record. The stock has fallen from about $418 to below $160 over the past year, yet on earnings and cash flow it is still not cheap.

At $158.55 on September 24, 2026, the shares trade 10.5% above my triangulated Base value of $143.50, a downside of 9.5% to Base. The Bear value of $102.31 is 35.5% below the price, and the required margin of safety of 40% puts the maximum buy price at $86.10. For existing holders this is a hold. For new money it is a watchlist name.

Route: SF-13 Industrials and manufacturing, diversified defense technology and autonomous systems after the BlueHalo acquisition. Economic classification: Quality Growth (7/12). Primary method: forward EV to fiscal 2028 revenue. Secondary methods: EV to EBITDA after stock compensation, and a historical and peer reference. AeroVironment's fiscal year ends in April. Values are present fair-value estimates, not 12-month price targets.

What AeroVironment is

AeroVironment, or AV, supplies small drones, loitering munitions and counter-drone systems to the U.S. and allied militaries. BlueHalo, which closed on May 1, 2025 for about $3.485 billion, added space, directed energy, cyber and electronic warfare. The deal created about $1.03 billion of intangible assets and substantial goodwill. After the U.S. cancelled the BADGER/SCAR space program in March 2026, AV recorded a $240.7 million goodwill impairment.

The character of the business has changed materially. The larger portfolio widens the addressable market, but post-acquisition returns and per-share free cash flow are not yet proven, which requires a higher margin of safety.

The latest quarter

Fiscal 2027 guidance was reaffirmed: revenue of $2.125 to $2.225 billion, about 10% growth, and adjusted EBITDA of $305 to $325 million, a 14% margin at the midpoint. Two thirds of the EBITDA is expected in the second half. Capex is guided at 12% to 14% of revenue for capacity expansion.

Why adjusted EBITDA overstates owner cash

Adjusted EBITDA adds back stock compensation, which was $38.3 million in fiscal 2026, up from $21.5 million a year earlier. More importantly, cash conversion is weak. In fiscal 2026, operating cash flow was -$78.4 million, capital spending $62.5 million and capitalized intangibles $23.7 million, so free cash flow was about -$165 million. Q1 fiscal 2027 was again negative. Headline growth is also flattered by the acquisition: fiscal 2026 revenue of $1.977 billion included about $919 million from BlueHalo, and pro forma fiscal 2025 revenue was about $1.66 billion.

Balance sheet and shares

Cash and short and long-term investments total about $675 million against about $730 million of long-term debt, mainly $747.5 million of 0% convertible notes due 2030, so adjusted net debt is only about $55 million. The share base changed materially: BlueHalo was paid with about $2.64 billion of AV stock, and in July 2025 AV raised about $968.5 million of equity and $726.9 million of convertibles. Shares outstanding are 50.8 million; the valuation uses 52 million diluted shares. At $158.55, market value is about $8.06 billion and enterprise value about $8.11 billion.

Primary valuation: forward EV to sales

After $55 million of net debt and 52 million shares, the primary Base value is $152.79. Base revenue of $2.5 billion is about 15% above the fiscal 2027 guidance midpoint, so it is a year further out than guidance.

Secondary valuation: EBITDA after stock compensation

Fiscal 2028 revenue of about $2.5 billion at a normalized 15% to 16% EBITDA margin gives about $390 million of adjusted EBITDA. Deducting about $38 million of stock compensation leaves hard EBITDA of about $352 million. At 19x, the midpoint of a premium defense-growth range of 18x to 20x, and after net debt, equity is worth about $6.63 billion, or $127.45 per share. Without the stock compensation deduction, the same inputs give $141.44.

Historical and peer cross-check

AV traded at much lower sales multiples before the defense drone rerating and the BlueHalo transformation, and the 2025 peak near $418 is not a normalized anchor. A post-transformation historical and peer reference of about $150 is used with low weight.

Valuation triangulation

The primary and secondary methods diverge by 18.1%, just below the framework's 20% warning threshold. The secondary and reference methods exist only for the Base case, so the Bear and Bull values come from the primary method alone.

What is the market already pricing in?

Enterprise value of about $8.1 billion is 3.7x the fiscal 2027 revenue guidance midpoint, 26x adjusted EBITDA and 29x EBITDA after stock compensation. The price requires continued double-digit growth, successful BlueHalo integration, margin expansion toward the mid-teens, much better free cash flow conversion and no repeat of major program-related impairments.

Bear, base and bull scenarios

Bear: program misses slow growth and compress the premium multiple, though funded backlog and liquidity argue against a distressed multiple. Base: guidance is met and growth continues in the low to mid-teens. Bull: Switchblade, counter-drone and directed energy demand sustain premium growth and the market pays 4x sales.

The probability-weighted value is $151.87, 4.2% below the price.

Sensitivity: primary value per share

How the buy price is set

Confidence B starts at a 30% margin of safety. Five points are added for acquisition, integration and goodwill risk, and five for weak cash conversion and high capex, for 40%. A 40% discount to the $143.50 Base gives a maximum buy price of $86.10.

Dividend

AeroVironment pays no dividend.

Reasons to own AVAV

• A strategic portfolio. Switchblade, small drones, counter-drone, directed energy, space and cyber sit where defense budgets are growing.
• Record demand. Funded backlog of $1.5 billion, total backlog of about $2.8 billion and twelve-month bookings above $3 billion.
• A wider market. BlueHalo materially expands what AV can sell.
• Margin improvement. Fiscal 2027 guidance implies a clearly higher EBITDA margin, weighted to the second half.
• Low net debt. The 0% convertible notes are almost matched by cash and investments.

What could go wrong?

• Integration. BlueHalo was transformative and has already produced a $240.7 million impairment.
• Valuation. The price requires strong growth and margin execution.
• Cash conversion. Free cash flow was about -$165 million in fiscal 2026 and negative again in Q1. Failing to turn backlog into cash is the main thesis breaker.
• Dilution. Equity-funded M&A and convertible notes reduce per-share value if returns disappoint.
• Internal controls. Material weaknesses were reported as of August 1, 2026.

Management execution

Q1 revenue beat expectations, funded backlog reached a record and guidance was maintained. On the other side stand the Space goodwill impairment, weaker Space, Cyber and Directed Energy revenue and material weaknesses in internal control. Management credibility scores 13/20, good with an acquisition caveat.

Stock Analyza scorecard

The valuation score is 40/100: the price sits above Base and well above the buy zone.

Confidence score

What I would watch from here

The next review point is Q2 fiscal 2027 results, expected in December 2026.

The three most important thesis breakers

1. A major backlog loss or program cancellation.
2. Failure of margin and free cash flow conversion.
3. Another material goodwill impairment or dilutive acquisition.

Adversarial review

The first draft's primary valuation, capital structure bridge and sensitivity table reconciled exactly. Its secondary value of $145 sat at the top of its own stated range, $390 to $400 million of EBITDA at 18x to 20x, whose midpoint gives $141.44, and it used adjusted EBITDA that adds back $38.3 million of stock compensation. Rebuilding it at the midpoint after stock compensation gives $127.45. The Base moved from $150 to $143.50, the maximum buy price from $90 to $86.10, and the probability-weighted value from $155.25 to $151.87. The draft's twelve-month price-touch probabilities were dropped as not part of the framework. The verdict is unchanged.

The strongest counter-argument is that BlueHalo turned AV into a unique multi-domain defense technology platform and that Switchblade and directed energy demand could sustain premium growth. The Bull case captures a 4x forward sales regime. The Base does not capitalize peak enthusiasm before post-acquisition free cash flow and returns are proven.

No test lifts the Base meaningfully above the price, and none moves the buy price anywhere near it. The publication gate status is PASS_WITH_WARNING: normalized post-BlueHalo owner earnings remain materially uncertain.

Final verdict: hold at $158.55, watchlist for new money

AeroVironment has a high-quality strategic portfolio and a record funded backlog, but BlueHalo materially changed its risk profile, and the price already requires successful integration, sustained growth and much better cash conversion.

Verdict: HOLD at $158.55, WATCHLIST for new money. Triangulated Base value $143.50, downside 9.5%, Confidence B (18/25). Required margin of safety 40%, maximum buy price $86.10.

For an existing holder, the strategic position and backlog support holding while cash conversion is tested. New money waits for $86.10 or below with the thesis intact, or for proof that BlueHalo produces per-share free cash flow.

The main thesis breaker is a failure to convert the expanded portfolio and funded backlog into durable per-share free cash flow and post-acquisition returns.

Sources

Primary sources include AeroVironment's Q1 fiscal 2027 results, the Q1 fiscal 2027 earnings call, the fiscal 2026 Form 10-K and the fiscal 2026 results, plus SEC filings on the BlueHalo acquisition and the Q1 fiscal 2027 Form 10-Q. Historical cash flow and the 52-week range come from third-party data providers.

The reference market price is $158.55, the September 24, 2026 regular session close. Balance sheet figures are as of August 1, 2026.