A Longlasting Russia-Ukraine War Creates a Catalyst to Buy AeroVironment Stock Now

Earlier this week, AeroVironment (AVAV) represented one of the hottest tickers on Wall Street, with AVAV stock gaining 28% following the drone manufacturer’s fiscal fourth-quarter earnings. Thanks to the company smashing top and bottom line targets, the underlying security immediately skyrocketed. As such, it’s easy to come away with the idea that now is the time to step away from the opportunity.

Nevertheless, investors who have a long-term view may want to give AVAV stock closer consideration. For one thing, despite the robust earnings performance, shares are still stuck in a bearish cycle. Since the beginning of the year, AVAV has slipped almost 29%. Over the past 52 weeks, the security is down 30%, leading to a Strong Sell rating from the Barchart Technical Opinion indicator.

Basically, while you might be late relative to the Q4 print, you’re still getting a lower price compared to what AVAV stock was going for one year ago. Of course, just because the price is tanking doesn’t necessarily equate to a contrarian prospect. Often times, when a company loses double-digit percentage points, it’s for a reason — and not a good one.

For AeroVironment, the single largest fundamental blow came when the U.S. Space Force issued a stop-work order and subsequent “termination for convenience” on the company’s Other Transaction Agreement (OTA) for the delivery of BADGER phased array antenna systems. This was part of the high-profile Satellite Communication Augmentation Resource (SCAR) program.

Not surprisingly, investors lashed out at AeroVironment, leading to an incredibly messy situation. Along with a restatement of previously reported Q3 financials and a short-seller campaign, AVAV stock hasn’t exactly provided stakeholders with a smooth ride. However, there’s one intriguing geopolitical element that could make AeroVironment worth considering for the long haul.

Russia’s Deeply Embedded War Economy May Bolster AVAV Stock

When it comes to the projected market value of AVAV stock, it’s impossible to separate it from the war in Ukraine. Since Russia’s invasion, AeroVironment has provided Ukrainian forces with critical equipment, particularly the Switchblade drone. As other conflicts have demonstrated, the nature of warfare has changed thanks to these autonomous weapons — with Ukraine representing the epicenter of the paradigm shift.

Given that Ukraine has far fewer resources and human capital than Russia, it does seem that the war may be entering its twilight phase — with the invaded country forced to make painful territorial concessions. However, there may be a wrinkle to this equation and that’s Russia’s deeply embedded garrison economy.

While much criticism has been leveled on Russian President Vladimir Putin and his war of choice, the reality — according to a Foreign Affairs report — may be that inertia is about the only thing that’s keeping Russia’s economy afloat. After years of repurposing civilian facilities for military functions while simultaneously suffering a massive brain drain, Russia simply cannot stop (let alone reverse course) without likely causing catastrophic turmoil.

If the Russians were to secure peace, millions of workers would suddenly lose their jobs. Further, because of Western sanctions, the country can’t just resume normalcy without severe friction.

It’s a sober perspective of an ugly situation. However, if we view this matter cynically, AVAV stock stops being just an event-based investment but rather a structural one.

Is This Dynamic Priced In?

Before you run out and buy AeroVironment stock, it’s worth pondering the obvious question: is the supposed structural transition of AVAV priced into the security?

If we were talking about any other company — say a semiconductor specialist — the answer would likely be a resounding yes. There’s no reason why a random person on the internet would see something that institutional investors and hedge funds have missed. However, geopolitics (and especially the war in Ukraine) is a tricky subject.

On one side, there’s a legitimate argument that Ukraine will soon be forced into a peace deal. 

However, the real bottleneck in this conflict might not be Ukraine’s reluctance to concede territory but rather Russia’s inability to transition from a garrison economy to a peacetime economy. Because Ukraine is a relatively minor power in the grand scheme of things, it can be pressured into concessions.

Russia? That’s a different beast altogether. And if it’s true that — for its own sake — it cannot seek peace, this war may last for a very long time. That’s a terrible human tragedy but it does give AVAV stock a longer runway than previously imagined.