Is the market too optimistic on DroneShield shares?

Is it time to take profit on DroneShield shares?

| More on:
A female soldier flies a drone using hand-held controls.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

DroneShield Ltd (ASX: DRO) shares are slipping today.

Shares in the S&P/ASX 300 Index (ASX: XKO) drone defence company closed Friday at $1.215. At the time of writing, they are changing hands for $1.207 apiece, down 0.7%.

For some context, the ASX 300 is up 0.3% at this same time.

This sees DroneShield shares down 14% over the past week, compared to a 0.6% weekly gain posted by the ASX 300.

Don't feel too badly for longer-term shareholders though. As you can see on the chart above, DroneShield shares remain up a blistering 364% over 12 months.

Which may make today a good time to take some profits.

Are DroneShield shares overvalued?

Red Leaf Securities' John Athanasiou believes ASX investors would do well to consider selling their DroneShield shares and reinvesting in companies with better opportunities.

"The company provides artificial intelligence-based platforms for protection against advanced threats, such as drones and autonomous systems," Athanasiou explained (courtesy of The Bull).

"The shares have risen from 38 cents on January 2 to trade at $1.28 on October 10," he added of the rocketing share price.

As for the company's recent performance, Athanasiou noted, "First half revenue from continuing operations rose 108% in 2024 when compared to the prior corresponding period. But the company's net loss was up 64%."

And that could mean investors have been overexuberant in bidding up DroneShield shares to current levels.

"In our view, the stock is overvalued, with the market pricing in too much optimism. We see better opportunities elsewhere," Athanasiou said.

What else do we know about the company's half-year results?

DroneShield shares closed down 8.2% on 27 August, the day the company released its half-year results, only to surge 9.8% the following day.

As noted above, revenue was up strongly year over year, notching a six-month record. But that wasn't enough to stem the company's increased half-year net loss.

As for the balance sheet, the ASX 300 drone defence stock reported a cash balance of $230 million with $32 million in contracted backlog.

Management also pointed out that the second half of the year "has traditionally been a stronger period for the company, with the 2H23 being 79% of the total FY2023 revenues".

And the company said DroneShield shares are well-placed to keep growing.

Management noted:

DroneShield continues to be in a highly favourable environment, with both the counter-drone industry rapidly growing and more generally defence and security budgets rising. The company has a number of unique differentiators (technically and commercially).

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.

More on Technology Shares

Two IT professionals walk along a wall of mainframes in a data centre discussing various things
Technology Shares

2 ASX 200 tech insiders selling $15 million to $45 million worth of company shares

What’s going on with the stock sales by these tech leaders?

Read more »

Woman relaxing and using her Apple device
International Stock News

Is it too late to invest in Nasdaq tech stock giants?

Big Nasdaq tech stocks have continued to soar in 2024.

Read more »

Management presents the ASX company earnings report to shareholders at an AGM.
Technology Shares

Buy and hold these ASX 200 tech stocks for 10 years

Goldman Sachs is bullish on these rapidly growing companies.

Read more »

Man holding fifty Australian Dollar banknote in his hands, symbolising dividends, symbolising dividends.
Technology Shares

The best ASX stock for Australians to buy with only $1,000 on hand

Goldman Sachs believes this stock could generate big returns for your money.

Read more »

Successful group of people applauding in a business meeting and looking very happy.
Technology Shares

Guess which ASX 200 stock is pushing higher after another record quarter

This growing company had yet another record quarter. Let's see what happened.

Read more »

A person leans over to whisper a secret to a colleague during a meeting.
Technology Shares

Guess which co-founder sold $61 million worth of this ASX tech share last week

This CEO has sold more than $100 million in shares over just the past month...

Read more »

A man slumps crankily over his morning coffee as it pours with rain outside.
Technology Shares

Why are Appen shares sinking today?

Let's see what is going on with this high-flying tech stock today.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Technology Shares

Buy rating: Bell Potter just upgraded this ASX tech stock

The broker has become even more positive on this growing company. Let's find out why.

Read more »