Investing in Unmanned Aircraft Systems

When we look at the aviation industry as a whole there are various players that can all have potential opportunities in a post coronavirus market. Considering that many airlines are still working to regain some strength from the loss of business and international travel restrictions let’s take a look at a different sector in the aviation industry that could potentially thrive in the current market.

As the aviation industry adapts to fast changing markets and fluctuating demands the need for research and specialized mission still remain high. Unmanned Aircraft Systems create a unique opportunity for research and development of new technology as it allows for unique mission to be capable.

With the ability to operate missions of extreme duration of time, uninhabitable environmental conditions, and unique payloads, Unmanned Aircraft Systems (UAS) are excellent tools for military of governments, research facilities, and universities to operate.

Having grown in popularity over the last decade as the commercial application have become more prominent the application that which this technology is now being incorporated in have expanded to new markets such as also some surveying work.

AeroVironment (AVAV)

AeroVironment (AVAV) is one of the leading organization that design, develops, produces, supports and operates a specialized portfolio of unique products and customized services for government agencies, private businesses, and consumers.

Part of their diverse organization includes also providing insurance for UAS. This part of the business shows the multitude of elements that are incorportated in the organization. In addition they provide in house repair and support on the products which they design.

The organization was incorporated in 2006. Since then they have been performing well with their collaborations and development of items such as the Raven, Wasp AE, Puma AE and Shrike, The company as well has developed and offers the Qube, as UAS for law enforcement, search and rescue and fire department personnel.

When we look at Analyst ratings the Research Team currently is rating AeroVironment at a HOLD July 2nd, 2020, and The Street is also currently with a HOLD rating since May 31st, 2020. The daily trading volume sits at a low average at under half a million orders in a day which makes liquidity lower in comparison to other organization that focus in aerospace defense.

The Market Edge has recently upgraded their rating on AVAV to a LONG position which holds in line with our bias here at Air Market Group. The organization has a great product that is continuing to provide returns for the organization.

Net profit Margins came in at 67% in Q1 of 2020. Earning Per Share are sitting at $1.22 and Operating Profit Margin is 73%. Overall the company continues to generate revenue and shows to have potential for new stream of revenue in the coming future.

Recently announced new Chief Operations Officer

On June 2nd, 2020 AeroVironment Inc. (NASDAQ: AVAV) announced the promotion of Ken Karklin, Senior Vice President, to the position of Chief operating Officer. The announcement made officially at 4:30 PM highlights the progress of an individual who joined the company back in 2009.

“Ken has demonstrated his ability to lead key functions within our organization and, on behalf of our Board of Directors and executive team, we congratulate him on his new role as chief Operating Officer,” said Wahid Nawabi, AeroVironment president and chief executive officer. 

Karklin has been in the position of senior vice president of operation since December 2018. The development and growth of strong and passionate individuals shows the ability of the organization to identify strong leaders and promote their team members.

“We look forward to his ongoing contributions to supporting our customers’ success, maintaining our market leadership and driving growth across our business. With the support of Ken and our talented team, we continue to execute our strategy effectively, with a focus on producing long-term value for our stockholders.”

Technical Analysis

Taking a look at AeroVironment (AVAV) from a technical perspective allows us to be able to determine a more probable direction of where the organizations stock value will be headed towards. Having had previous lows from 2015 the value has risen from $16 a share to just over $120 a share.

Since the all time high we can see how price has dropped down and then created some support levels near the mid-range level of the overall movement of the range. Now that we have started to enter a sideways trend in the mid range of the zone we are going to be looking for either a continuation of the zone or a break out from above the lower resistance levels.

Having already made a 40% increase from the lower range of the channel there is a high probability for there to be some resistance near the current price level with a possibility of making a downwards push with some more sell orders entering the market with individuals securing profits. The next technical resistance level that is measured on the chart can be found with the light red line.

This area shows the next zone that will hold some sort of significance or strength. These zones do not hold value unless we can see the value of the stock start to respect the zones. There is a possibility that the value of the stock spikes up above the level entirely. It can continue to move upwards and then find some support or resistance near the next level.

The value of the zones in the Fibonacci Retracement channel allows us to determine high probability areas that could be potential areas of opportunity. There is no guarantee that these zones will be respected in terms of holding or testing at them, although based on the mathematical equation we can identify particular areas that may potentially allow us to enter trades in appropriate times.

Considering that the stock has recently experienced a rally entering in a long stock position could potentially result in some drawback. Entering in long position would also currently require a large exposure of capitol due to the stock being near a current high.

A potential opportunity to take ownership of stock positions while also being able to capitalize on a small potential downwards movement would be selling a vertical bull put spread. Selling a put spread that is out of the money will allow you to pull in a premium. Should the stock start to drop down in value then one and you be assigned on the spread then you have the opportunity to take ownership of the stock now at a lower price.

For a more basic strategy, buying a call option for a few expiration dates out will allow you to maintain the long term theta of the option while also allowing for significant amount of time for the value of the option to rise with correlation stock price increases. To help protect yourself from risk exposure selling a call against your open position to create a wide spread could potentially be an simple strategy.

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