Let the Bears Have Their Say on AgEagle Aerial Systems

Without question, the novel coronavirus has been for most of us the ugliest chapter in our lives. But often times, there are profound lessons learned through tribulation. In this case, the pandemic demonstrated the need for efficient, contactless deliveries. To that end, you can find no more efficient platform than drones, an area which AgEagle Aerial Systems (NYSEAMERICAN:UAVS) specializes in. Unfortunately, a compelling narrative alone hasn’t been enough to support UAVS stock.

Source: Pavel Kapysh / Shutterstock.com

In my August write-up for AgEagle, I mentioned that this was a speculative venture that’s only appropriate for “dumb” money. But in that context, UAVS stock appeared a reasonable bet due to the strong fundamentals. As I stated, the underlying company offers a seemingly attractive solution for a common logistics issue.

Known as the last mile problem, it’s the final 10% of a shipped product’s journey that is the most expensive. And this financial cost stems from the last mile’s inefficiency. Unlike a long-haul cargo flight that suffers virtually no traffic and follows a single route, the final leg of the logistics chain features traffic congestion, stop-and-go driving and multiple drop-offs.

With AgEagle converting its agricultural service drones to delivery drones, it marries the efficiency of air travel with the last mile. Here, drones can skip over the suburban warzone and fly products directly to the end-customers. By doing this, AgEagle helps cut down on overhead associated with the last mile. As a result, companies can shift resources to more productive or efficient components of their business.

Further, UAVS stock is levered toward the burgeoning legal cannabis industry. Through AgEagle’s aerial map-based technology, the drone manufacturer can facilitate “oversight, compliance and enforcement of hemp cultivation.”

UAVS Stock Failing to Appease Investors

Unfortunately, even the prospect of a cannabis-related revenue stream (just in case the drone delivery business doesn’t work out) hasn’t saved UAVS stock from volatility since the middle of July. Though shares have poked its head into the clouds every now and then, the overriding trend has been negative.

As anyone who has covered UAVS stock will tell you, AgEagle’s financials are significantly lacking. In some years, the company has only generated revenue that would match a single high-paying office worker’s salary. For a publicly traded corporation, that’s not going to cut it. And these lowly figures were registered well before the pandemic.

Plus, there are big questions about AgEagle’s mystery e-commerce client, which apparently placed early orders for drones. Nobody knows who this mystery company is, though many have speculated that it’s Amazon (NASDAQ:AMZN). It could be. But as time goes by, this rumor seems unlikely to materialize favorably.

Furthermore, the drone-delivery solution has its own problems. What I failed to realize earlier is that drones are noisy. Not only that, they emit irritating sounds that’s perhaps impossible to ignore. When you consider that hundreds of these things could be flying above our heads every day, we may need a rethink about the entire process.

Therefore, it’s not terribly surprising that UAVS stock mimics the negative price action of Inovio Pharmaceuticals (NASDAQ:INO), a coronavirus vaccine candidate which has encountered trouble over the past few months.

Just to be clear, I’m not saying there’s any comparison between AgEagle and Inovio. However, since July 9 for UAVS and June 19 for INO, the price action between the two share a 55.4% correlation.

UAVS vs. INO correlation analysis
Click to Enlarge
Source: Chart by Josh Enomoto

Admittedly, this isn’t the strongest correlation that you can get. However, by looking at the price action, you can see similarities between the two. Speculative demand for their respective industries drove up these high-risk, high-reward ventures. But as the realities of their circumstances came into view, both shares started to decline.

My concern for UAVS stock is that shares are not yet done correcting, especially since negative news tends to generate more bearishness in the immediate term.

Positive Storyline Still Available

Though the present volatility in UAVS stock worries me, the bullish case for AgEagle isn’t completely out of the picture. One factor that could really help AgEagle, particularly if President Donald Trump somehow wins reelection, is that the company is based in the U.S. According to a brief write-up on BNN Bloomberg:

AgEagle forecast “promising” new business opportunities as an American drone maker, saying some customers have become wary of Chinese manufacturers because of the “touted supply chain challenges and perceived national security risks.” The company is also seeking customers in the hemp-cultivation market.

As I’ve mentioned in my story for Taiwan Semiconductor Manufacturing (NYSE:TSM), sanctions and tariffs will not deter China. In fact, China is aggressively throwing everything at its technological development, including conducting brain-drain strategies. In other words, the red threat is a real one. And this dynamic places a premium on U.S.-based tech firms.

Ultimately, though, investors have lost patience with UAVS stock for the time being. Therefore, it’s best to wait for the selling pressure to die down because AgEagle could drop down to some alarming valleys before it rises again.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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