On Aug. 14, Kansas-based AgEagle Aerial Systems (NYSEAMERICAN:UAVS) reported its second-quarter earnings. So far in 2020, UAVS stock has soared 400%. Long-term investors who aren’t too risk-averse may consider buying the shares on weakness.
AgEagle designs and sells unmanned aerial vehicles known as UAVs or drones. Most of its products are used by the agriculture industry. Its drone-based, geo-mapping services are utilized by farmers. The company also offers a subscription-based cloud analytics service that processes data collected by drones. That data is also mainly used by those in the agricultural sector.
According to the technology publication IEE Xplore, “By using drones to scout for weeds and pests, spot diseased plants or dry areas, and spray the right amount of fertilizer and pesticide, farmers can increase yield with less resources and environmental harm. Returns are especially steep for high-value crops like wine grapes. Drones are cheaper than hiring a small plane and, in contrast to satellites, work in cloudy conditions and give higher resolution images.”
Entering the Delivery Market and Q2 Results
The company’s focus has been on the agricultural industry, especially hemp farming. In late 2019, however, its management announced that it would be “pursuing expansion opportunities within the emerging Drone Logistics and Transportation market with the manufacture and assembly of UAVs designed to meet specifications for drones that are meant to carry packaged goods in urban and suburban areas.”
According to its recent Q2 results, for the six months that ended on June 30, AgEagle’s revenue came in at $407,605. Although its gross profit was $218,972, its net loss was $1,658,641, and its net loss per share was 44 cents.
Therefore, the company’s financial numbers do not quite justify the recent increase of UAVS stock.
What is Behind the Momentum of UAVS Stock?
On March 18, the shares were changing hands for 19 cents each. The shares caught fire after the company announced in mid-April that it had received follow-on orders to manufacture commercial drones for the delivery of packages.
Although AgEagle did not name its customer, rumors suggested that it was Amazon (NASDAQ:AMZN). On April 30, UAVS stock hit a 52-week high of $5.15. Now it is hovering at $2.40.
In recent years, Amazon has launched Prime Air. The e-commerce giant called the service “a future delivery system from Amazon designed to safely get packages to customers in 30 minutes or less using unmanned aerial vehicles, also called drones.” Such use of drones to deliver parcels may have the potential to decrease delivery costs and make them more efficient.
According to recent research by Reed College’s Eitan Frachtenberg, “Parcel delivery generates revenues of more than US$200 billion per year in the United States alone. Small-parcel drone delivery will grow rapidly in the near future and replace a significant portion of deliveries in person… Amazon’s current prototype can deliver packages of up to 5 lb for a distance of 15 mi.”
AgEagle also announced that in Sept. 2020 it plans to relocate its headquarters and manufacturing operations to Wichita, Kansas. It has also recently finalized a deal to build a new manufacturing facility near the Wichita Mid-Continent Airport. The plant will house the company’s drone-manufacturing operations.
In June 2020, Wichita Mayor Brandon Whipple confirmed that Amazon is also opening a distribution center in the city. According to rumors, AgEagle and Amazon will collaborate closely in Kansas.
Should Investors Buy AgEagle’s Stock Now?
Technological innovations will likely substantially improve drones in the next ten years. Drones may be used for the “last-mile delivery” of packages. That’s because they can deliver packages more quickly and cheaply than vans. Given these points, investors are likely to hear the name of AgEagle Aerial Systems, which manufactures small drones, more often in the future.
In its Q2 earnings press release, the company said “AgEagle’s proven expertise in manufacturing rugged, reliable and professional grade UAVs makes us a logical partner for designing, manufacturing and testing drone platforms in the fast growing package delivery market – a market forecasted by Research and Markets will climb to $11.2 billion by 2022 and subsequently rise to $29.06 billion by 2027.”
These are forward-looking statements that should not necessarily be the basis of long-term investment decisions. Yet the company may potentially be getting ready to make an important announcement.
However, unless AgEagle makes an actual deal with Amazon or another company, the current valuation of the stock cannot be justified. Therefore, UAVS stock is a high risk/high return investment. Less risk-averse investors may want to build a position if the price declines further. The shares will become especially attractive if they fall toward the $2 level or below.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education, including a Ph.D. degree, in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
