One Drone Stock to Invest In
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When we talk about drones, we first have to clarify which of the two main types of drones we’re talking about; military drones or commercial/consumer drones. From an investor’s perspective, these two types of drone represent two very different types of exposures.
Military Drones have been in development since as far back as World War 1, were widely used in the Vietnam War, and have no doubt been widely used ever since. There isn’t anything necessarily disruptive about an unmanned aircraft taking high-altitude pictures or lobbing rockets at the enemy. This technology is in widespread use today, and the growth will most likely be based on the number of rich countries engaged in “wars” at any given time. Instead, Consumer and Commercial Drones are where the real growth is expected to be at.
You may have decided you wanted to invest in drones because one was buzzing around your neighborhood recently, or you noticed they’ve started cropping up an awful lot in reality TV, NatGeo shows, and YouTube videos. Increasing mentions in the media are also driving interest from retail investors:
Just today, Amazon requested a special air zone for their planned air delivery drones. This is a market that is experiencing the type of rapid growth that investors want a piece of. The second biggest privately held electronics company in the world, DJI Innovations, is also the world’s biggest maker of these types of drones. Other private players also compete in this space but as for publicly traded companies, the only viable option for retail investors today may be a French company called Parrot (EPA:PARRA) which is also traded on the OTC market (PAOTF). While it may not be a drone pure-play yet, PARRA is on target to become one in the near future.
About Parrot
Parrot may not be that well known among U.S. investors, but this French wireless products manufacturing company has been around since 1994 and has a current market cap of $626 million and 2014 revenues of $268 million with a small loss of $2.75 million. The Company is segmented into 3 significant divisions; Drones, Automotive, and Connected Devices. The breakdown of revenues from each division can be seen as follows:
If we first look at the “drone” division, we see a year-over-year sales growth of +97%. In other words, Parrot nearly doubled their drone revenues in both the retail drone subdivision and the commercial drone subdivision which accounts for just 15% of all drone revenues. While 2013 drone revenues were only 18% of total revenues for Parrot, increasing that number to 34% in 2014 still hardly constitutes a pure play. However, we also have to note the double-digit revenue declines in the other two divisions which Parrot has managed to completely offset with their additional drone revenues. If Parrot manages the same growth in all of the above divisions for 2015 and 2016, the “drones” division would then represent 75% of total revenues making this a stock with significant exposure to the drone story. At this point, little doubt would be left that the company would be doing anything but focusing solely on continued growth of the drone division. Investors have begun to buy into this growth story recently with the share price surging over +100% in the past 3 months alone.
While this stock increase could be based solely on hype, it could also be that the drone story wasn’t priced in until just recently. Eager drone investors may want to begin dollar-cost-averaging into a position when the stock forms a new base while keeping a close eye on GoPro (GPRO), the wearable camera company whose cameras are currently used on many retail and commercial drones. GoPro has announced their intention to enter the drone market in the first half of 2016.
Conclusion
For U.S. investors, Parrot’s stock can be purchased as an ADR on the OTC market under the symbol (OTCMKTS:PAOTF). However, this is not a very liquid issue and probably has a very high bid-ask-spread which penalizes investors. Alternatively, shares can be bought on the much more liquid Euronext Paris exchange.
Share
This stock not only makes drones but in car-entertainment systems operated hands-free by bluetooth, which means that the business is not a one-trick pony; giving extra security for investors. I have been long PARRO since under €20, and am more than happy to stay long. I agree that for exposure to the rapidly growing drone market, this is a good place to be.
Thanks for the comment Andrew. Over 50% of 2014 revenues for Parrot were from the automotive segment so you’re absolutely right; it’s a diversified business at the moment. Automotive had negative growth in the double digits between 2013-2014 which the drone segment all but made up for. If Parrot wants to keep that diversification they need to quell the negative growth in automotive.
2 years later… the stock is at €8.50 per share (-82%)
Thank you for the update!
Indeed, Chinese company DJI managed to kick the isht out of both Parrot and 3D Robotics.
https://nanalyze.com/2015/07/dji-innovations-the-biggest-drone-company-in-the-world/
A good reason why retail investors should pay attention to startups both domestically and abroad.
2 years later… the stock is at €8.50 per share (-82%)