DroneShield Ltd (ASX: DRO), a company specializing in counter-drone technology, faced a significant drop in its share price on Monday. The stock fell by 21% to close at $1.55, marking a substantial decline of 43% from its 52-week high of $2.72 reached last week.
The sharp decline followed the release of DroneShield’s second quarter and half-year update. Despite achieving impressive growth in the first half of the year, the company reported a notable slowdown in revenue growth during the second quarter.
DroneShield, an ASX tech stock, reported record revenue of $24.1 million for the six months ending June 30, reflecting a 110% increase from the same period last year. However, a substantial portion of this revenue came in the first quarter, totaling $16.7 million, compared to $7.4 million in the second quarter. This represents a significant decline of over 50% in revenue from the first to the second quarter.
The slowdown in the second quarter, coupled with the company's high valuation, led investors to sell off shares, reacting to the weaker-than-expected revenue figures.
Analyst Reactions
Following the release of the update, analysts reviewed the company’s performance. They observed that while DroneShield had achieved substantial growth in the first half of the year, the results fell short of expectations. The first-half revenue of $24.1 million was significantly below the anticipated $30 million.
Despite this, analysts have adjusted their long-term revenue forecasts upward to account for a larger sales pipeline, driven by increased defense opportunities and potential civilian applications. Projections for revenue in the coming years are $129.2 million for CY25 and $162.9 million for CY26, with estimated earnings per share of 4.5 cents and 6.2 cents, respectively.
The high gross margins and relatively fixed cost base are expected to result in substantial earnings growth if revenue forecasts are met.
While the overall view of DroneShield remains positive due to its leading position in the counter-drone market and its potential benefits from growing defense sector investments, the current valuation has led to a reassessment of the stock. The recommendation has been adjusted to reflect these changes, with a revised price target set at $1.60, aligned with the recent closing price of the shares.
The company is still considered a significant player in the counter-drone sector, with anticipated benefits from geopolitical tensions, increasing drone usage, and advancements in AI. However, given the recent performance and valuation, increased scrutiny is expected in the short term. Investors are advised to monitor future developments and contract announcements for more clarity.