ASX defence stocks have been red hot over the last 12 months.
Consistent geopolitical uncertainty and government investment have been catalysts for the sector.
Many ASX defence stocks have benefited from these tailwinds.
But for investors who have been hesitant to gain exposure, is there any further upside?
A new report from Bell Potter has identified two particular ASX defence stocks with plenty of room for more growth.
Let's see what the broker had to say.
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Electro Optic Systems Holdings Ltd (ASX: EOS)
Electro Optic Systems is an Australian company that develops and produces advanced electro-optic technologies.
The company's products are used in space information and intelligence services, optical, microwave and on-the-move satellite products, optical sensor units, and remote weapons systems for land, sea, and air.
Its share price has already rocketed 740% higher in the last 12 months.
But the team at Bell Potter is optimistic the company can continue to grow following a new acquisition.
In a report from the broker yesterday, Bell Potter said EOS has entered into an agreement to acquire MARSS.
MARSS is a Europe-based command and control ("C2") systems, which are critical for effectively countering drones.
C2 and software/AI capabilities have been an obvious gap in EOS' counter-drone (CUAS) offering. The acquisition of a C2 capability bolsters EOS's chances in securing prime contractor status on large C-UAS programs thus potentially boosting sales of EOS' other C-UAS effectors, including High Energy Laser Weapons; Slingers; and Interceptor Drones. C2 systems also offer recurring revenues.
Following this news, Bell Potter upgraded EPS +1%/+15% in CY26/27e, reflecting: consolidation of the MARSS Group acquisition in 2H26e; updated cash balance; and higher effector sales in CY27e.
The broker has also raised its price target on this ASX defence stock to $12.00 per share.
From yesterday's closing price of $10.09, this indicates an upside of 18.93%.
At 43x CY26e EV/ EBITDA, EOS trades at a 40% discount to the Global drone peer group mean.
Elsight Ltd (ASX: ELS)
Elsight is engaged in the development and commercialisation of Halo in the UAV market. Elsight's Halo provides BVLOS (Beyond the Visual Line of Sight) connectivity for drones, UAVs, and other unmanned/uncrewed systems on-air and on land.
This ASX defence stock is up 990% in the last 12 months.
Bell Potter just upgraded its outlook, indicating there is still more upside.
The broker said it has upgraded longer term revenue growth assumptions due higher confidence in commercial drone market growth and revenue growth following the commercial launch of the new Aura platform.
Bell Potter has an upgraded price target of $4.60 (previously $3.60).
From yesterday's closing price, this indicates an upside of $3.87, this indicates an upside of 18.86%.
We believe ELS has developed a market leading product that is fully leveraged to the emerging use of unmanned systems in both a defence and commercial context. In CY26e, we expect ELS to be a beneficiary of downstream demand from global defence departments, supporting our 70% hardware sales revenue growth estimate.
