AeroVironment Shares Face Headwinds Despite Strong Revenue Growth

The latest quarterly report from defense technology firm AeroVironment presented a complex picture for investors. While the company posted a staggering surge in revenue, significant pressure on profitability and a downward revision to its annual forecast triggered a sharp negative reaction in the markets.

For its fiscal second quarter, AeroVironment announced revenue of $472.5 million. This represents a remarkable 151% year-over-year increase, largely attributable to the acquisition of BlueHalo, which contributed $245.1 million. However, the operational performance told a different story.

The company's profitability metrics fell short of expectations. On a non-GAAP basis, earnings per share came in at $0.44, missing the consensus estimate range of approximately $0.79 to $0.87. Under GAAP accounting standards, AeroVironment reported a net loss of $17.1 million. This loss was primarily driven by $48.2 million in non-cash, acquisition-related expenses connected to the BlueHalo integration.

In response to these challenges, management revised its full-year guidance downward:
- Revenue forecast: $1.95 billion to $2.00 billion
- Non-GAAP EPS forecast: $3.40 to $3.55 (compared to a prior market consensus around $3.65)

This guidance cut signals that integration costs from the BlueHalo purchase, alongside rising service expenses, are currently exerting more pressure on margins than previously anticipated.

Should investors sell immediately? Or is it worth buying AeroVironment?

Robust Demand Provides a Foundation for Recovery

Despite near-term profitability issues, the underlying demand for AeroVironment's products remains robust. A key supportive factor is a major $874 million IDIQ contract award from the U.S. Army for Group 1 to Group 3 Unmanned Aircraft Systems, including platforms like the JUMP 20 and Switchblade.

Furthermore, the company's funded backlog as of November 1, 2025, stood at approximately $1.1 billion. The book-to-bill ratio for the quarter was a strong 2.9, indicating that for every dollar of revenue recognized, $2.90 in new orders were booked. This demonstrates solid market demand, with the current challenge lying in converting that demand into stronger profit margins.

Market Reaction and Analyst Adjustments

Investors reacted swiftly to the mixed results. The company's share price declined nearly 15% in the week following the earnings release. Equity researchers have begun adjusting their models accordingly. For instance, Cantor Fitzgerald reduced its price target from $335 to $315, while maintaining an "Overweight" rating on the stock.

The central issue driving market volatility is the growing divergence between impressive top-line growth and short-term weakness in bottom-line performance. The stock is likely to remain under pressure until management can provide clear evidence of declining integration costs and a return to more stable non-GAAP margins within the confines of the new guidance. Demonstrating this progress in upcoming quarters will be crucial for restoring investor confidence.