Why is the Droneshield share price crashing 19% on Monday?

Investors are sending shares in Droneshield down 19% in morning trade.

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The Droneshield Ltd (ASX: DRO) share price is tumbling back to earth today.

Shares in the All Ordinaries Index (ASX: XAO) drone defence company closed last Wednesday trading for $1.12 apiece. In morning trade on Monday, shares are swapping hands for 91 cents apiece, down 19.2%.

For some context the All Ords is up 1.2% at this same time.

You're unlikely to hear longer-term stockholders complaining, however. Even with today's fall factored in, the Droneshield share price is still up a whopping 197% since this time last year.

Here's what's going on.

What's pressuring the Droneshield share price today?

Droneshield entered a trading halt on Thursday morning after announcing a $70 million capital raising via a fully underwritten share placement along with a share purchase plan of up to $5 million for its retail shareholders.

New shares are being issued for 80 cents apiece, far below the $1.12 closing price last Wednesday.

Management said that with strong demand for its drone defence products amid rising global conflicts, it would deploy some of the new funds to build up its inventories. The company also plans to increase its spending on artificial intelligence (AI) and machine learning.

The Droneshield share price is crashing today after the company announced it had completed the placement of more than $70.2 million worth of shares to sophisticated, institutional and professional investors.

But with strong demand for the placement, management has now proposed a second placement to raise an additional $30.3 million. The second placement remains subject to shareholder approval.

Post transaction, the company expects a pro forma cash balance of approximately $161 million.

Droneshield noted its sales pipeline was now worth more than $500 million. It has more than 90 qualified projects at different stages with various government customers. $27 million in contracted sales orders are currently being fulfilled.

And business has been growing strongly over the past year.

The company reported a record $55 million in revenue for 2023, up 226% from 2022. Droneshield also turned a profit in 2023, with profit after tax coming in at $9.3 million.

Commenting on the capital raising that should support the company's growth plans but is smashing the Droneshield share price today, CEO Oleg Vornik said:

Droneshield would like to thank existing shareholders for their support, and welcome new shareholders on our register. We are well positioned to capitalise on the pipeline of opportunities, supported by the current tailwinds through drones being used extensively for nefarious purposes globally.

Bell Potter acted as Droneshield's corporate advisor, and Bell Potter and Shaw and Partners acted as joint lead managers, book-runners and underwriters to the placement.

Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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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