It is fair to say that the DroneShield Ltd (ASX: DRO) share price has been on fire over the past 12 months.
During this time, the counter-drone technology company's shares have risen an incredible 575%.
But what is more incredible is that one leading broker believes that the DroneShield share price could still be undervalued despite this strong rise.
What is the broker saying?
Firstly, let's take a look at what Bell Potter is saying about the company's fourth quarter and full year update.
The broker was pleased with DroneShield's performance during FY 2025, noting that its revenue was ahead of expectations. And while its costs were higher than it was forecasting, it feels that this is a one-off. It said:
DRO reported unaudited revenue of $216.5m for CY25, +3% vs. BPe of $210.0m. In 4Q25, revenue of $51.3m grew 94% YoY and compares to cash receipts of $63.5m. SaaS revenues in 4Q25 of $4.6m grew 475% YoY, with $18.1m committed for CY26e. DRO reported operating cash flow of $7.7m which compares to an outflow of – $8.9m in 4Q24. Including capitalised R&D, operating cash flow was $3.2m.
DRO is targeting to be consistently operating cashflow positive and profitable moving forward. DRO reported a January 2026 cash balance of $201.1m (BPe $189.9m Dec 2025). The Dec 2025 fixed cash cost is $150m/year, higher than our estimates likely higher due to one-off costs associated with the Alexandria fit out.
Sales pipeline reduces
Something that caught the eye with DroneShield's update was its sales pipeline, which has reduced meaningfully since its last update.
Bell Potter isn't concerned and believes this is likely to reflect low probability contracts or ones that were reduced in scope. It adds:
DRO reported a sales pipeline of $2.09b as of January 2026, a fall from $2.55b reported in October 2025. The decline in the pipeline is mostly due to several early stage/low probability large projects which did not materialize or were reduced in scope, as well as AUD/USD appreciations.
DroneShield share price could be undervalued
According to the note, the broker has retained its buy rating and $5.00 price target on its shares.
Based on the current DroneShield share price of $4.18, this implies potential upside of 20% for investors over the next 12 months.
Bell Potter highlights that the company's shares trade at a sizeable discount to global drone peer group. This is despite having a leadership position in the industry. It concludes:
We believe DRO has a market leading RF detect/defeat C-UAS offering and a strengthening competitive advantage owing to its years of battlefield experience and large and focused R&D team. We expect 2026 will be an inflection point for the global C-UAS industry with countries poised to unleash a wave of spending on RF detect and defeat solutions. Consequently, we believe DRO should see material contracts flowing from its $2.1b potential sales pipeline over the next 3-6 months as defence budgets roll over to FY26e.
At 47x CY26e EV / EBITDA, DRO trades at a 28% discount to the global drone peer group. Further, we see upside risk to our revenue forecasts in CY26/27e, given the opportunities observed in the C-UAS industry.
