Now for an investing idea.
Recently, I wrote a long piece about Steve Jobs, Apple and AAPL, saying, “AAPL’s best days as an investment are over. In fact, AAPL is likely to underperform the market in the years ahead.” Today, the stock plunged on big volume through technical support, following the news that Steve would take a nearly six-month medical leave. So my timing was lucky. And my conclusion is unchanged. Remember, it’s all about changing levels of perception.
Your job–and ours–is to find the next AAPL. One way to do that is to ask, “What company serves a mass market, is profitable, has terrific prospects for growing revenues and earnings rapidly, can ride a wave of societal evolution, and is not yet loved by the majority of investors?”
One candidate is AeroVironment (AVAV), a company with a solid business today and especially bright prospects for the future, as Americans shift toward electrically powered vehicles.
Dr. Paul MacCready, a visionary aeronautical engineer who devoted his life to developing more efficient transportation vehicles that could “Do more with less,” founded the company in 1971.
A champion glider pilot, he was the U.S. National Open Class Soaring Champion three times. He was also the first American to become World Soaring Champion.
He created the first practical human-powered plane, the Gossamer Condor, in 1977, with Dr. Peter Lissaman.
Two years later, his pedal-power Gossamer Albatross was successfully flown from England to France.
In 1981, his Solar Challenger set records for highest, farthest and longest solar-powered manned flight.
In 1985 he built a flying, remote-controlled pterosaur (the animal commonly called a pterodactyl) for an IMAX film.
And in 1987, his Sunraycer, created in partnership with General Motors and Hughes Aircraft, won the world’s first solar-powered car race, traveling across Australia (north to south) in 5.2 days. The second place car arrived two days later.
All five of these creations can be seen in the Smithsonian.
Sadly, Dr. MacCready passed away in 2007. But his spirit lives on in AeroVironment. Today, the company’s bread-and-butter comes from the design and manufacture of Unmanned Aircraft Systems (UAS), the remote-controlled, hand-launched planes that survey the skies over war zones of Iraq and Afghanistan while our soldiers remain safe on the ground. The U.S. Army accounts for 62% of revenues, while other U.S. government agencies account for 22%. And that business is golden; AeroVironment has won all four known projects for such aircraft put up for bid by the Pentagon.
But the future of AeroVironment lies in the children of Sunraycer, the vehicle that led to the creation of the GM Impact and then the EV-1.
As Brendan Coffey, editor of Cabot Green Investor, wrote recently, “Perhaps most exciting is AeroVironment’s systems for testing and charging electric vehicles. The company makes a system called PosiCharge, basically a fuel pump to recharge an electric battery. Since electric systems are making inroads into industrial uses, such as forklifts, PosiCharge is finding early acceptance there. In December, the company sold a system to electric truck maker Balgon (BLQN) to be used with its trucks in the Port of Los Angeles, which mandates that on-site equipment be electric powered. In September, AeroVironment reached a deal with heavy equipment dealer Toyota Material Handling USA to market the system. With the U.S. government now starting to discuss incentives for electric car infrastructure, there is potential for business to get very interesting this year. Financially, AeroVironment is in excellent shape. It’s free of debt with $120 million in cash on hand and its main client–the U.S. government–is the most reliable payer around.”
I think the company’s recharging business has the potential to make AeroVironment the next Apple. It could eventually serve a mass market. It’s been profitable since 2002, so it’s well managed. It has terrific prospects for growing revenues and earnings as electricity and solar slowly muscle in to the energy industry. It can ride a wave of societal evolution. And it’s not yet loved by the majority of investors.
In fact, AeroVironment came public in January 2007 at 17, and now it’s 34. It’s been doing well, especially considering the horrible market of the past year. But the stock is still not expensive. It trades at roughly three times revenues, or a P/E ratio of 28. In the latest quarter, revenues grew 22% to $65.8 million while earnings soared 71% to $0.41 per share.