DroneShield Ltd (ASX: DRO) shares are rebounding on Wednesday morning after a 7% decline yesterday.
In morning trade, the counterdrone technology company's shares are up 7% to $1.33.
This compares favourably to the 0.1% gain by the benchmark ASX 200 index.
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Why are DroneShield shares outperforming?
Investors have been bidding the company's shares higher this morning after it announced a new contract win in the United States.
According to the release, DroneShield has received a repeat order worth a total of $3.1 million from a U.S. Government customer for a number of its counterdrone (C-UxS) systems.
Management advised that the delivery of these products is expected to be completed this month, using available stock on hand. After which, payment for the order is expected in the December quarter.
Should you invest?
The team at Bell Potter remains very positive on DroneShield and believes the company is well-positioned for growth in the coming years.
For example, the broker is forecasting revenue growth of 80% to $97.4 million and the doubling of its underlying net profit after tax to $18.6 million in FY 2024.
It then expects a 32.6% increase in revenue to $129.2 million and a 47% lift in underlying net profit after tax to $27.3 million in FY 2025. After which, further increases to $162.9 million and $46.1 million, respectively, are forecast for FY 2026.
Commenting on its bullish view on DroneShield's shares, last month the broker said:
We have made no changes to our revenue forecasts at this stage, whilst we have made minor changes to operating expenses, cash flows and working capital in-line with today's result. Our EPS changes are -6% and +2% in CY24 and CY25, respectively. We have reassessed our valuation assumptions and determined they are overly conservative considering the well capitalised balance sheet (we made no changes post the recent capital raise) and the recent re-rating of mid-cap defence peers. As such, we have increased the multiples we apply in our EV/EBITDA and PE valuations to 26x and 36x, respectively. The net result is an 8% increase in our PT to $1.35.
However, with DroneShield shares now trading broadly in line with Bell Potter's valuation, investors may want to wait for a pullback to create a more compelling entry point.
It is also worth noting that Bell Potter has not yet responded to today's update. There's a chance it could update its estimates and valuation in the coming days after accounting for the contract win.
