U.S. Army Spending $47 Million on Hand-Launched Drones

Image source: Aerovironment.

The commercial drone business hasn't taken off as quickly as many investors predicted, but military drones are still a booming business. The U.S. Army, in particular, has become a very important company for small-drone maker AeroVironment , which relied on the Army for 47% of revenue last fiscal year.

That relationship continued recently, with a new order for $47 million worth of Raven and Puma drones announced this Monday. For AeroVironment, it's an order that will nearly fill a quarter's worth of demand, and further validate its leadership in the small-drone space.

Ruling the skies from the ground The Raven is designed for close-range military action, allowing troops to perform reconnaissance miles from their positions. And it's small enough to be easily transported by troops. Puma is larger, but has a longer range and flight time, and can land on water or on land.

Data source: Aerovironment.

Raven is the most widely used drone in the world today, according to AeroVironment. The question for the company now is whether it can expand its small-drone dominance into larger markets.

Commercial drones are now being used for oil exploration, like this drone being launched in Prudhoe Bay. Image source: AeroVironment.

Investing in future growth While AeroVironment has a solid footing in the small-military-drone business, it wants to grow into the commercial drone and larger aircraft market, as well. Global Observer is a high-altitude aircraft capable of performing military and civilian surveillance from 12 miles above the ground and flying for days at a time. The program has a lot of potential, but it's required millions in R&D spending, and the payoff is years in the future.

The narrative is similar for commercial drones, where AeroVironment is trying to outfit Puma and Raven to perform tasks for oil explorers, farmers, and domestic security. But the market has been slow to develop, and regulations are taking years to roll out.

Long term, these are important markets for AeroVironment to break into, but they're eating into financial results in the meantime.

The bottom line for AeroVironment These investments resulted in a 79% decline in net income last fiscal year, compared to a modest 3% rise in revenue. For investors, the hope is that more revenue from the U.S. Army and other small-drone customers will lead to the financial stability needed to develop future product lines.

It's a big leap of faith for investors, but with the potential market for drones measured in billions of dollars, it's a risk worth taking. If AeroVironment is good enough for the U.S. Army, it should be able to break into more markets as they open up. That's why I think the stock is a great bet for investors with a long-term horizon.

The article U.S. Army Spending $47 Million on Hand-Launched Drones originally appeared on Fool.com.

Travis Hoium owns shares of AeroVironment. The Motley Fool owns and recommends AeroVironment. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.