On the lookout for a bargain basement ASX growth stock?
I'm talking about the kind of company with the potential to increase its revenues and profits much faster than most stocks you'll find on the All Ordinaries Index (ASX: XAO). And of course, the kind of company likely to be rewarded for that growth with outsized annual share price gains.
Well, you may wish to run your slide rule over DroneShield Ltd (ASX: DRO) shares.
The All Ords drone defence stock was on an absolutely stellar run, right up until 15 July.
How stellar?
Well, as you can see in the chart below, in the 12 months up to market close on 15 July, this ASX growth stock delivered shareholders an eye-popping gain of 863%.
Or enough to turn a $5,000 investment into $48,148. In one year.
Then, things took a sharp turn for the worse.
What happened to the DroneShield share price?
Since peaking at a record close of $2.60 a share on 15 July, the DroneShield share price has plunged 58.08%.
Shares in the ASX growth stock closed on Friday trading for $1.09 apiece.
The big sell-off began after several analysts began questioning the company's valuation, which had soared to a market cap of some $2 billion. Despite exceptionally strong year on year profit and revenue growth, one analyst called the valuation "wild".
Investors also favoured their sell buttons after DroneShield launched a capital raise. The company issued new shares at $1.15 each, a 17% discount from the prior trading day's closing price.
With this backdrop in mind, is buying this ASX growth stock today akin to catching a falling knife, or are we looking at a potential bargain basement opportunity?
Is the ASX growth stock now trading for a bargain?
Like Icarus, the DroneShield share price looks to have flown too high too fast and overheated.
However, unlike the legend of Greek mythology, I expect DroneShield will not only recover from the past month's plunge but also soon fly higher once more.
Investor overexuberance does appear to have driven the ASX growth stock into unreasonably high valuation territory in July. But after the major retrace, DroneShield's market cap has come down to just $940.10 million.
It's also brought the company's price-to-earnings (P/E) ratio down to 55.53 times.
Now, that's still sky-high for your blue-chip companies.
But for an ASX growth stock with DroneShield's potential, I think it represents a good long-term bargain opportunity at current prices.
At its half-year results, DroneShield achieved record revenue of $24.1 million. And the company's balance sheet was strong, with management reporting a cash balance of $146 million and no debt as at 30 June.
And let's not forget the successful $120 million capital raise completed at the end of July.
That's put this ASX growth stock in a really strong position to fund research and development in artificial intelligence (AI), invest in strategic technology acquisitions and spur rapid revenue growth.
While shares could certainly slide further from here, I believe this stock will be back on a solid growth path before year's end.
