It is not a lithium explorer, uranium miner, or an AI company. The crown for the most purchased small-cap stock on the Australian sharemarket in the past year belongs to DroneShield Ltd (ASX: DRO).
The counter-drone specialist has soared in popularity among retail and institutional investors alike, fuelled by record global defence spending and a string of large contracts. Let's take a closer look.
What does DroneShield do?
DroneShield develops and sells counter-drone technology designed to detect and disable hostile drones. Its systems are used by military forces, law enforcement, and critical infrastructure operators to prevent drones from communicating with their controllers.
The company has carved out a strong niche, particularly as conflicts such as the Russia-Ukraine war highlight the growing role of drones on the battlefield. Management has also expanded into civilian markets with products like SentryCiv, designed for airports, stadiums, and government facilities.
Recent financial performance
DroneShield has been riding a wave of demand. In June, the company announced its largest-ever contract, a $61.6 million deal with a European military customer. That helped drive half-year earnings to triple year on year.
In addition, July saw the company commit $13 million to a new production facility in Sydney, tripling its manufacturing capacity by 2026. This is part of management's plan to target a $2.4 billion global manufacturing pipeline, with Europe emerging as its fastest-growing export market.
These wins come on top of other recent deals, including contracts in Latin America and with Five-Eyes partners. With governments boosting defence budgets, the company appears well-positioned to capture further opportunities.
How has the share price performed?
Investors have certainly noticed. DroneShield shares have rocketed more than 120% in the past 12 months, reaching as high as $4.39 in August before settling around $3.09 at the time of writing.
The rally has not been without debate. Some fund managers suggest the fundamentals are "stretched" with a market capitalisation now approaching $3 billion. Even so, brokers like Bell Potter have placed short-term price targets above current levels, reflecting optimism that momentum could continue.
Foolish Takeaway
The DroneShield story shows just how quickly a small-cap can capture investor attention and deliver remarkable gains. The company's success reflects both its own execution and the broader surge in global defence spending.
Of course, growth at this pace can bring volatility. Investors considering such opportunities need to be mindful that rapid rises often carry heightened risks. Still, the right small caps can grow quickly, and riding the train from small to big has the potential to reward investors richly over the long term.
