AgEagle Aerial Systems (NYSEAMERICAN:UAVS) stock has taken flight over the past month. Up through April of this year, UAVS stock traded for 50 cents per share or less. But not now.
The company brought in a new CEO, J. Michael Drozd. He energized the shareholder base, and the stock surged to more than a dollar per share. In July, Drozd announced his vision for the company. He wrote a wide-reaching shareholder letter describing AgEagle’s new business ventures.
With that shareholder letter, things went wild. AgEagle’s stock spiked to as high as $5 a share, making for a 1,000% return from earlier in the year. Things have died back down a little since then. The company raised capital, and investors are awaiting further developments.
Still, with the stock up at $3, AgEagle has retained most of its gains for the year.
Why are traders fascinated with the company? AgEagle focuses on agricultural drones that can fly over fields and help farmers with various monitoring tasks. Drones can help farmers track a crop’s health and reduce the need for chemical usage in the farming process, among other benefits. In addition to that line of business, AgEagle also intends to pursue package delivery drones.
Make No Mistake: This Is A Small Business
As of last quarter, AgEagle Aerial had just $4 million in overall assets. That’s a rather scant number for a company that currently has a market capitalization of $136 million. Making matters worse, $3 million of those assets are goodwill. That is to say, that’s value that it paid in acquiring assets, but which has no tangible worth today.
When you drill down to hard assets, AgEagle had just $356,000 in cash, and $36,000 of property, plant, and equipment. Needless to say, it’s hard to run a competitive business with just $36,000 of equipment. And the cash pile was rather unimpressive as well. To the company’s credit, it had less than $400,000 of total liabilities as well – so the company isn’t in dire financial straits.
Not surprisingly, subsequently to the past quarter, it raised $13 million dollars. This should give it some runway as it seeks to expand its operations. Still, take note of the company’s modest size. Even if the business grows as planned, it’s going to take a while for everything to come together.
Last quarter, AgEagle reported that revenues grew 751% year-over-year. At first glance, this sounds incredible. When you take a closer look, however, it’s less impressive. In Q1 of 2019, AgEagle produced just $46,000 of sales. For this most recent quarter, AgEagle increased that to $391,000 of revenues. And sequentially, revenues doubled from Q4 of 2019.
Things are trending in the right direction. But $400,000 a quarter of revenues is not yet anything close to a sustainable business. AgEagle will need to grow by leaps and bounds before it approaches consistent profitability.
InvestorPlace’s Will Ashworth pointed out an interesting development with AgEagle recently. The company has made plans to use its drones to focus on package delivery in addition to agricultural work. The company has recently leased new facilities and issued a news release detailing business arrangements with a major unnamed e-commerce company.
Given the new facility’s proximity to an Amazon (NASDAQ:AMZN) warehouse, various people on social media have speculated that AgEagle could have a connection with Amazon. In addition, one newspaper column suggested as much.
If so, that could be a game-changing development for AgEagle. However, and let me be clear about this, as of now, that is all unverified hearsay. It’s not certain who AgEagle is working with, and what sort of contract may be in play. It’s quite possible traders have gotten ahead of themselves with optimism.
Package delivery and drones for agricultural use are fairly different in operation as well. Investors shouldn’t necessarily expect a seamless transition from one application to another. Even if a big contract is in works, expect time for things to ramp up.
UAVS Stock Verdict
The business pivot toward package delivery is interesting. It’s certainly a hot sector right now. If AgEagle’s products can be successfully positioned for the logistics space, investors could have a winner here.
That said, there’s more questions than answers at this point. Is there any involvement with Amazon at all? How will a company with such a tiny research & development budget compete with bigger firms? And can AgEagle develop a meaningful recurring revenue stream?
There are the makings of a cool business here. It’s certainly one to keep your eye on. But at this point, UAVS stock looks far too speculative for the average investor. I’d wait until there are more concrete signs of success before putting money into this stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek. At the time of this writing, he held no positions in any of the aforementioned securities.