It’s been a while (over a year!) since my first Company Spotlight article. In this edition, I will turn my focus to the only other company in the DRONES Index that I consider to be a pure drone play: AgEagle Aerial Systems, Inc. (UAVS), or “AgEagle” for short. While AVAV is defense-focused, UAVS is commercial-focused.

AgEagle is a manufacturer of full-stack autonomous unmanned aerial systems. It operates in three segments: Drones, Sensors, and Software-as-a-Service (SAAS). The company is categorized in the “Technology” sector and “Computer Hardware” industry by many financial sites, while it categorizes itself in the “Industrials” sector under multiple industries: Aircraft Manufacturing, Drones, Agriculture, Hemp, and Technology. It was once considered a “Hemp Stock”.

AgEagle is a Drone-Dedicated company that I categorize in the DRONES Growth Portfolio.

AgEagle was founded in 2010 and is headquartered in Wichita, KS. The company’s early days focused on Precision Agriculture aerial imagery services in America’s Breadbasket. The company appeared to have a long period of stability in that role until later in the decade. From 2018-2021, AgEagle went on a Merger and Acquisition (M&A) binge:

• 2018: Acquired Agribotix (advanced agricultural imaging and analysis software) for about $3M.
• 2021: Acquired MicaSense (precision thermal/multispectral sensors) for about $23M.
• 2021: Acquired Measure (aerial intelligence software) for about $45M.
• 2021: Acquired SenseFly (fixed-wing drones) for about $23M.

All-in-all, that’s about $94 million over the course of three years ($91 million in 2021 alone) to build AgEagle into a full-stack, end-to-end solution for the commercial agriculture industry.

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AgEagle’s product lineup consists of the following major components.

• eBee-series of fixed-wing drones
• MicaSense RedEdge and Altum series of sensors
• Measure Ground Control flight management software

Has the UAVS stock been wildly successful from this rapid growth? Not exactly. In fact, not at all. At least not yet. Take a look at its 3-year stock performance, compared with industry benchmarks IYW (Technology) and ITA (Aerospace & Defense).

The share price spiked in 2021, in the midst of the M&A spree. This is likely a combination of two phenomena: (1) sudden increased media coverage that increased investor visibility, and (2) the COVID-19 induced buying frenzy in the high-risk Technology sector (remember TINA?). Share prices returned to more normal levels in late 2021, and have been on a steady decline since then (along with the rest of the stock market).

AgEagle (as the name suggests) has traditionally focused its efforts on supporting the commercial agriculture market. It has expanded its offerings in the last year to other commercial verticals and military/government customers.

• 2022: Announced eBee VISION, a military-grade variant of the commercial eBee.
• 2023: Awarded five-year indefinite quantity contract for government purchases.
• 2023: Sales agreement to supply sensors to competitor Wingtra.
• 2023: Wins U.S. government contract to equip eBee VISION with military-unique ground control capabilities.

While the company is keeping it quiet, I think AgEagle is gearing up for another round of growth.

• 2022: Announced plans to relocate company headquarters to Raleigh, NC. North Carolina is one of the drone technology hubs within the U.S.
• 2022: Quietly raised about $3.5 million in an equity sale to Alpha Capital Anstalt, a Liechtenstein-based private investor. Alpha Capital Anstalt’s media releases suggested that the firm has some interest in a Drone Delivery capability.
  • I reached out to AgEagle’s Investor Relations for additional information and received no response.
• 2023: Sold an additional round of equity for about $4.2 million.

Is UAVS a Buy? Let’s look at its snapshot today, and then look at its potential for future growth.

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Our first look will be at its cash management. The following graphic was derived from AgEagle’s 2022 Income and Cash Flow statements.

Make no mistake: as of 2022 end-of-year, AgEagle is bleeding money. Total Annual Revenue of $19.1M is dwarfed by its Operating and Other Expenses.

How is the company’s valuation compared to industry peers?

	UAVS	Industrials Sector	Technology Sector
P/E Ratio	N/A	26.91	41.71
EPS	-$0.63	$7.07	$6.22
P/S Ratio	1.49	—	—
PEG Ratio	N/A	—	—
Price/Book Ratio	0.35	—	—
Return on Equity	-91.69%	17.93%	42.98%
Analyst Recommendations	N/A	—	—
Analyst Price Targets	N/A	—	—

I will be quite blunt–there is not a single number on this table that makes UAVS look attractive to any but the most risk-tolerant investor.

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So far, we’ve taken a look at AgEagle’s history and their present-day status. What about their future?

The company released its Q1FY2023 results in May 2023. Here are some highlights and lowlights.

• Total Revenue increased 6%, largely due to a 111% increase in MicaSense sensor sales.
• Gross Profit increased 45%.
• Total Operating Expenses decreased 31%.

If we extrapolate these quarterly figures through the rest of the year, it still results in a net loss for the year; however, it’s a smaller net loss than previous years. The trend line has a positive slope. I find this to be a promising development during a year of increasing interest rates and costs of capital.

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Will AgEagle continue to increase its Sales? I think we are seeing them gain global traction—especially with government customers.

• 2022: eBee X receives FAA clearance of Operations Over People (OOP)
• 2022: eBee TAC demonstrated for NATO armed forces
• 2023: eBee X sales agreement in Saudi Arabia
• 2023: eBee VISION sales to European military forces

My opinion is that AgEagle has the following tailwinds.

• Former AgEagle CEO Brandon Torres Declet was appointed to the FAA Drone Advisory Committee in 2021. This advisory body provided recommendations to the U.S. government on how to shape policy and regulations to allow UAS integration into our airspace and daily life. It will take years for FAA to fully implement all suggestions, but we are already seeing some movement in the right direction.
• FAA regulations are slowly relaxing, allowing broader commercial adoption in urban and suburban areas (operations over people, operations beyond visual line-of-sight, operations at night). This frees eBee operators from their traditionally rural and agrarian operating areas, and expands the commercial use cases (asset inspection, mapping, environmental monitoring).
• Foreign airspace authorities are relaxing regulations more rapidly than the U.S.; I would expect to see global sales grow significantly faster than domestic sales.
• The war in Ukraine has demonstrated that small UAS still have a role in modern first-world conflict. Militaries around the world will be stockpiling inexpensive UAS for wartime use.
• Growing sentiment in the U.S. and other countries against Chinese drone manufacturers allows U.S. manufacturers to regain some market share.
• Alpha Capital Ansalt’s teaser about Drone Delivery… Most readers are somewhat familiar with Wal-Mart and Amazon Prime Air efforts in “last-mile” endpoint delivery (i.e. to the customers’ doorstep). However, there is a broader “middle-mile” market waiting to be exploited. As an example, think about how many consumer delivery vehicles you see each day in your neighborhood. Next, think about how many semi-tractor trailers, freight trains, and cargo airplanes are also transporting material between distribution sites. Which of these are carrying the most cargo?

AgEagle’s commercial sales depend on the growth of the Drone Service Providers’ market. Here are some Compound Annual Growth Rate (CAGR) projections from MarketsAndMarkets Research.

• Agriculture Drones Market: $17.9B by 2028 (31.5% CAGR)
• Drone Analytics Market: $6.5B by 2027 (25.5% CAGR)
• Drone Services Market: $40.7B by 2026 (23.8% CAGR)
• Drone Inspection/Monitoring Market: $23.0B by 2027 (14.6% CAGR)
• Public Safety Drones Market: $2.0B by 2028 (13.0% CAGR)
• Small Drone Market: $6.2B by 2027 (10.1% CAGR)
• Multispectral Camera Market: $2.2B by 2028 (9.0% CAGR)
• Land Survey Equipment Market: $9.9B by 2026 (5.3% CAGR)

This is a significant list of the fastest growing industries, and AgEagle is right there in the thick of it. I choose to believe that the company has spent the last several years building a productive capacity (potential energy) and is ready to exploit a period of greater productivity (dynamic energy). The company will have to control its costs and judiciously pay down some high-interest debt before we see significant profit; however, I hold the opinion that AgEagle Aerial Systems, Inc. (UAVS) is a tremendous opportunity for patient, growth-oriented investors.

As always, please conduct your own research and consult a Financial Advisor for any potential investments. The author holds a long position on UAVS.