DroneShield Ltd (ASX: DRO) shares are sinking today.
Shares in the S&P/ASX 200 Index (ASX: XJO) drone defence company closed down 6.5% yesterday trading for $4.18. In late morning trade on Wednesday, shares are swapping hands for $4.01 apiece, down 4.1%.
For some context, the ASX 200 is up 0.1% at this same time.
Taking a step back, DroneShield shares remain up a very impressive 546.8% since this time last year.
That's enough to turn a $10,000 investment into $64,677.
But it has been anything but a smooth ride for longer-term investors.
Shares hit an all-time closing high of $6.60 on 9 October before plunging to a one-year low of $1.72 on 21 November.
So, when it comes to buying this ASX 200 stock, timing can make a big difference in your returns.
Which brings us back to our headline question.
Should you buy into the recent retrace in DroneShield shares?
With today's intraday moves factored in, DroneShield shares are down 15.2% since last Thursday's close, presenting a potentially profitable long-term entry point.
Shares came under pressure yesterday following the release of the company's December quarter update (Q4 2025).
Investors clearly have high growth expectations for the defence company, with shares falling despite DroneShield reporting record quarterly revenue of $51.3 million, up 94% from Q4 2024.
And cash receipts from customers surged 142% year on year to $63.5 million.
The balance sheet also looks strong, with the company reporting a cash balance of $210.4 million as at 31 December.
Potentially spooking forward-looking, growth-hungry investors, the ASX 200 defence stock reported an 18% decline in its sales pipeline since October to US$2.09 billion.
Commenting on that decline, Bell Potter analyst Baxter Kirk said (quoted by The Australian Financial Review):
We expected an increase in the sales pipeline. The decline in pipeline is mostly due to several early stage-low probability large projects which did not materialise or were well reduced in scope.
Still, Bell Potter maintains a bullish outlook for DroneShield shares, forecasting a "wave of spending" from nations with large defence budgets seeking to secure their critical sites from drone attacks.
"We believe DRO should see material contracts flowing … over the next three to six months as defence budgets roll over to FY26," Bell Potter noted.
The broker also said that the company's lengthy "battlefield experience" offers it a "strengthening competitive advantage".
Connecting the dots, Bell Potter has a $5 price target on DroneShield shares.
That represents a potential upside of almost 25% from current levels.
