AgEagle Aerial Systems (NYSEMKT:UAVS) is one of the more interesting stocks that I’ve covered in recent memory. Among other reasons, because UAVS is such a quiet stock.
The drone company flew onto Wall Street’s radar — no pun intended — in April 2020, when management reported follow-on purchase orders for its drones from an unnamed “major e-commerce company”.
That announcement breathed life into the bull thesis that AgEagle is a potential major player in the drone economy. UAVS stock took off like a rocket ship. It hasn’t looked back since.
Shares are now up 500% year-to-date.
A little digging strongly suggests that this unnamed major e-commerce company is Amazon (NASDAQ:AMZN). A little more digging reveals that the follow-on PO could be the beginning of a significant, multi-year partnership between the two companies wherein AgEagle becomes a major Amazon drone supplier.
Of course, if that happens, the 2020 breakout in UAVS stock will turn into something much bigger over the next few years. After all, AgEagle features a market cap of just $150 million today. The drone delivery market projects to measure $29 billion by 2027.
But, if it doesn’t happen, there isn’t much else to hang your hat on here. Without an Amazon deal, UAVS stock will plunge back to penny stock territory.
So… will an Amazon deal materialize?
I think so.
A Closer Look at UAVS Stock
AgEagle was founded in Kansas back in 2010 as an agriculture intelligence company.
The idea was pretty simple. Create durable and rugged drones with advanced sensors that fly around and capture granular aerial image data of crops and growing fields. Send those images back to an integrated software service to be analyzed. Produce a comprehensive crop report. Enable a new era of data-driven farming, wherein farmers increase yields and reduce costs.
Great business idea. But the addressable market was niche, and management didn’t execute very strongly in winning business.
So, new management came in, and the company pivoted.
Now, AgEagle is a drone company focused primarily on two end-markets: 1) leveraging its ag tech drone expertise to build delivery drones for logistics, and 2) leveraging its ag intelligence history to create a compliance software system for U.S. hemp cultivation.
All About Delivery
The latter business — hemp growing compliance software — won a big contract in November 2019 from the Florida Department of Agriculture and Consumer Service, which selected AgEagle to manage the online application submission and registration process for hemp growers in Florida in 2020, 2021 and 2022.
But that contract isn’t generating much revenue. Instead, all the revenue is coming from the delivery drone business.
Specifically, that business has now received two batches of POs from an unnamed major e-commerce company in late 2019 and early 2020. That unnamed e-commerce company accounted for 92% of sales in the first half of 2020. It is essentially the sole driving force behind AgEagle’s 175% revenue growth in 2019, and 516% revenue growth in the first half of 2020.
So, make no mistake, AgEagle has a lot of moving parts. Only one of those parts matters today. The drone delivery business.
More specifically, all that matters today for UAVS stock is if these drone delivery POs turning into something more.
The Amazon Rumors and UAVS Stock
A little digging reveals that the unnamed major e-commerce company AdEagle is working with is Amazon.
Around the same time that AgEagle reported the second batch of POs from its e-commerce partner, it was confirmed that Amazon will be building a 140,000 square foot warehouse in Wichita, a stone’s throw away from AgEagle’s Neodesha, Kan. headquarters. That same month, AgEagle said in an SEC filing that it would be relocating its headquarters and manufacturing operations to Wichita, too. The company has since done just that.
Further, also around the time of the POs announcement, a video was leaked online that began with an AgEagle x Amazon logo, implying a collaboration between the two companies. The video mostly involved AgEagle’s founder unloading an Amazon drone from its crate. It has since been removed.
AgEagle has also suddenly raised a bunch of capital over the past few months from institutional investors.
And, as if all that weren’t enough, local Kansas media has reported that Amazon’s name appears on RFPs (Requests for Proposals) to bid on work at an unprecedentedly large million square foot factory in Kansas, set to open by August 2021.
In other words, the signs are clear. It appears Amazon and AgEagle are working together on drone technology. More than that, the collaboration appears to be going very well, and both companies appear to be making preparations for this collaboration to turn into something much, much bigger over the next few quarters.
Savvy investors should be asking at this point: Why AgEagle?
After all, Amazon is a trillion-dollar company, flush with enough capital and talent to build out a best-in-breed drone system. Plus, the company has been teasing around with drone tech for a few years, so it’s not like Amazon is starting from square one.
But Amazon has an insatiable thirst to be first and best, at all times. Drone delivery won’t be an exception. Bezos and company want Amazon to be the first-to-market with drone deliveries, and they want those deliveries to be unrivaled by follow-on competitor services.
To that end, it makes sense that Amazon would want to partner with the best players in this space and build on already existing robust drone tech frameworks.
Again, though, why AgEagle?
It’s a surprise pick, sure, but AgEagle’s drone tech is actually very impressive — and perfectly suitable for logistics.
The drones are exceptionally rugged and durable — perfect for delivering packages in all neighborhoods. They can fly for up to an hour — well above the standard among drones today, which is about 30 minutes, and again perfect for an industry that will require these drones to deliver many packages throughout a day.
They are also equipped with advanced aerial imaging technology, which can be used to identify objects on the ground even in the cloudiest of conditions — a feature which, when applied to logistics, could enable these drones to “see” delivery destinations at all times of day and in all weather conditions.
In other words, without knowing it, AgEagle has constructed a drone tech framework that is ideal for the logistics industry.
The data, reports and technology here all strongly imply that AgEagle is going to turn into a major delivery drone supplier for Amazon.
When will such a deal be officially announced?
It’s anyone’s guess. But with Amazon warehouses set to open in Kansas over the next 12 months and AgEagle rapidly expanding production, it seems likely that the two companies will announce some formal partnership/collaboration by the end of 2021, if not sooner.
Any such announcement will, of course, cause UAVS stock to soar.
Partly because this is an obscure company, and any official affiliation with Amazon will attract a swarm of buyers. But more importantly because, as a major delivery drone supplier for Amazon, AgEagle could one day do billions of dollars in revenue.
That potential future simply isn’t priced into UAVS stock today, with the market cap at just $150 million.
Bottom Line on UAVS Stock
UAVS stock is an exceptionally unique small-cap stock that simultaneously feels highly speculative and very enticing.
Don’t throw your lunch money into this name. It’s too risky for that.
But, if you have the risk appetite, I say start a small position in UAVS stock, on the premise that an official Amazon partnership is likely in the works and could be announced soon.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized as one of the best stock pickers in the world by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, he was long AMZN.