Schaeffer's Trading Floor Blog

Why AeroVironment, Inc. (AVAV) May Be Ready to Run Higher

Low expectations surround outperforming AVAV

by 6/10/2014 3:07 PM
Stocks quoted in this article:

In spite of the fact that AeroVironment, Inc. (NASDAQ:AVAV) has surged nearly 78% over the past 52 weeks, sentiment surrounding the aircraft specialist has tended toward the bearish side. In the options pits, for example, the stock's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.39 ranks in the 99th percentile of its annual range. Simply stated, puts have been bought to open over calls with more rapidity just 1% of the time within the past year.

Echoing this is the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.54, which ranks higher than 62% of similar readings taken in the past year. In other words, short-term speculators are more put-heavy than usual toward AVAV.

It's a trend witnessed outside of the options arena, as well. Among covering analysts, no fewer than six maintain a tepid "hold" recommendation toward the stock, compared to two "buy" or better ratings. Plus, the consensus 12-month price target of $30.88 stands at a discount to AVAV's current perch at $35.19.

However, on some corners of the Street, sentiment appears to be shifting. Over the course of the past two reporting periods, for example, short interest has plunged more than 31%, leaving 3.8% of the stock's float sold short. It would take nearly three sessions to cover these remaining shorted shares, at AVAV's average daily pace of trading.

As noted, AeroVironment has been a long-term outperformer on the charts. Although the equity entered a brief period of consolidation after hitting a record peak of $41.67 in early April, the stock found a foothold atop its 160-day moving average in late May. A quick bounce off this rising trendline has the equity up roughly 17% from its May 21 intraday low of $30.20. From a contrarian perspective, AVAV may be poised to extend this run higher, should skeptics continue to capitulate to the equity's upward momentum.

In fact, AeroVironment, Inc. (NASDAQ:AVAV) has shot 4% higher today, following BP plc's (ADR) (NYSE:BP) successful flight of AVAV's Puma AE aircraft over Alaska's North Slope. This is the first time the Federal Aviation Administration (FAA) has approved an unmanned commercial flight over land. Speaking of its five-year mapping agreement with BP, AVAV CEO Tim Conver said, "This is an important achievement for our joint team and for the industry in demonstrating the safe and effective use of our proven UAS technology for commercial applications."

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