Why the Droneshield share price is flying higher on Tuesday

ASX investors are bidding up Droneshield shares on Tuesday. But why?

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The Droneshield Ltd (ASX: DRO) share price is taking off today.

Shares in the All Ordinaries Index (ASX: XAO) drone defence company closed yesterday trading for 79.5 cents. At the time of writing on Tuesday morning, shares are swapping hands for 83.0 cents apiece, up 4.4%.

For some context, the All Ords is up 0.1% at this same time.

Here's what's happening.

Droneshield share price recovers from cap raise

As you can see on the chart above, the Droneshield share price has been a smashing performer over the past year, up an eye-watering 168%.

But if you look closely, you'll also see that, even with today's intraday lift factored in, shares in the drone defence company have sunk 26% since 17 April.

Why?

Well, because of a highly dilutive capital raising.

The stock entered a trading halt on 17 April at $1.12 per share. This came after management announced they were conducting a $70 million capital raising via a fully underwritten share placement along with a share purchase plan (SPP) of $5 million (and up to $15 million) for its retail shareholders.

Management also proposed a second placement to raise an additional $30 million. This second placement remains subject to shareholder approval.

When the stock recommenced trading on 22 April, the Droneshield share price closed the day down 16.1% at 94 cents.

The pressure came because new shares were issued for 80 cents apiece, almost 29% below the previous closing price.

Indeed, this saw the stock close lower for the next four trading days as well.

Until today.

Today management announced that the SPP received applications exceeding the maximum capped raising amount of $15 million. The board has therefore opted to close the SPP early, at 5pm AEST this Friday, 3 May.

The board thanked shareholders for their ongoing support.

What is the new capital being used for?

With the ripples from the dilutive cap raising fading, the Droneshield share price may return to its upward trend.

Though not necessarily for another 168% annual gain.

With regional conflicts heating up from the Middle East to Eastern Europe, and with Taiwan simmering in the background, the company has experienced soaring demand for its drone defence technologies.

Hence, management intends to use the new capital to build up the company's inventories to meet the growing pipeline of customer orders.

Droneshield is also investing in artificial intelligence (AI) to up the capabilities of its systems. As such, some of the newly raised funds will be spent to expand its in-house AI and machine learning capabilities.

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 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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