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No stock, no matter how well its underlying company might be doing, can soar high forever. So it was with soaring drone stock AeroVironment (NASDAQ: AVAV), whose price lost altitude at a more than 6% rate on Friday. A new analyst note was the main catalyst behind the drop, which was notably steeper than the 0.7% slip of the benchmark S&P 500 index.

Recommendation cut from Baird

Well before market open that day, Baird's Peter Arment downgraded his AeroVironment recommendation to neutral from his previous outperform (i.e., buy), at a price target of $161 per share.

While Arment likes the drone company's fundamentals, he's concerned about that share price surge. This, he pointed out in his note, was sparked by its fiscal third-quarter results released earlier this week. These trounced analyst expectations and showed hot growth over the year-ago period -- which shouldn't have come as that much of a surprise, given the surging demand for its combat drones.

Writing about several of the company's major products the analyst said that "While we remain bullish on backlog growth in 2024 with Replicator, LASSO, and large [foreign military sales] on Switchblade 600 yet to be awarded, we believe the AVAV stock is currently fully valued."

High valuations

Arment certainly has a point. The sharp and sudden popularity of AeroVironment stock has made it expensive on its valuation. Its current price-to-sales ratio is 6.7, and its forward P/E stands at nearly 62. The investing world is eager to get a piece of the company's success, and that's no longer coming cheap these days.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AeroVironment. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.