Electro Optic Systems Holdings Ltd (ASX: EOS) shares are racing higher on Monday.
At the time of writing, the ASX defence stock is up 17% to $8.61.
This follows the release of its FY 2025 results before the market open.
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EOS shares rise on results day
Investors have been buying EOS shares today despite it recording a drop in revenue for FY 2025.
It seems investors are instead focusing on a sharply strengthened order book, improved balance sheet, and signs that the company's three-year turnaround has positioned it for growth.
According to the release, for FY 2025, EOS reported revenue from continuing operations of $128.5 million. This is down 27% year on year.
And while its gross margin improved significantly to 63%, up from 48% in FY 2024, underlying EBITDA came in at a loss of $24.4 million. This is wider than the prior year's $11.6 million loss.
However, statutory net profit after tax was $17.5 million, boosted by a $91 million gain on the sale of EM Solutions.
While its earnings numbers were mixed, the market appears to be looking ahead.
Order book surges
A major highlight was EOS' unconditional order book, which increased to $459 million at 31 December 2025. This is up 238% from $136 million a year earlier.
The ASX defence stock signed $424 million worth of contracts during the year, compared to just $70 million in FY 2024.
Key wins included a $125 million high energy laser weapon (HELW) export contract, a $108 million LAND 400-3 remote weapon systems contract, and multiple Slinger counter-drone system orders.
Management stated it aims to realise 40% to 50% of the current order book during 2026.
Importantly, the order book does not include the conditional US$80 million Korean laser weapon contract or any future contribution from the planned MARSS acquisition.
Balance sheet reset
EOS also materially strengthened its balance sheet during the year. All borrowings were repaid, and the company ended FY 2025 with $106.9 million in cash.
It has also secured a new $100 million term loan facility, which remains undrawn and available to support growth.
Positioned for a defence super-cycle
Management described 2025 as the final year of its three-year turnaround program and pointed to supportive global defence spending conditions.
The company has commercialised its high energy laser weapon system, expanded geographically into Europe and the Middle East, and announced the acquisition of MARSS to add AI-enabled command-and-control capabilities.
With a significantly larger order book, a clean balance sheet, and exposure to fast-growing counter-drone and space control markets, investors appear to be bidding EOS shares higher on the belief that FY 2026 could mark a return to earnings growth.
