Why is the high-flying DroneShield share price crashing 20% today?

This tech share is running out of steam on Thursday. But why?

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The high-flying DroneShield Ltd (ASX: DRO) share price is having its wings clipped on Thursday.

In morning trade, the counter drone technology company's shares are down 20% to 74 cents.

What's going on with the DroneShield share price?

There appear to have been a couple of catalysts for today's weakness.

The first is profit taking from investors after some incredible gains in recent weeks.

For example, even after today's decline, the DroneShield share price is up 100% since the start of 2024.

What else?

A broker note out of Bell Potter this morning is also likely to be weighing on its shares.

According to the note, the broker has downgraded DroneShield's shares to a hold rating with an improved price target of 90 cents.

The good news is that following today's decline, this price target now implies potential upside of over 20%. Which isn't bad for a hold rating!

Why the downgrade?

Bell Potter made the move on valuation grounds after its strong gains year to date. It explained:

Our long-term outlook remains positive for DRO based on current macroeconomic conditions and the detailed sales pipeline. However, based on the recent share price appreciation and the current valuation, we downgrade our recommendation to HOLD.

Speaking of the long-term, Bell Potter adds:

We have made minor downgrades to our short-term forecasts but more substantial upgrades to our longer-term forecasts based on the increased visibility over the long-term pipeline. This has included revenue upgrades of 5%, 13% and 13% in CY24, CY25 and CY26, respectively.

It is forecasting revenue of $84.2 million in FY 2024, $101.8 million in FY 2025, and $115.9 million in FY 2026. Whereas profit after tax is expected to be $18.8 million in FY 2024, $26.2 million in FY 2025, and $32 million in FY 2026.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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