It is fair to say that DroneShield Ltd (ASX: DRO) shares have been a great investment over the past 12 months.
But with its shares up around 350% during this time, the upside from here could be more limited than a year ago.
But don't worry because there's another ASX drone stock that could generate big returns between now and this time next year, according to Bell Potter.
Image source: Getty Images
Which ASX stock?
The stock that the broker is bullish on is Elsight Ltd (ASX: ELS).
It is a supplier of communication modules to drone OEMs. Bell Potter notes that the ASX stock offers advanced communication components for unmanned (aerial, ground and sea) systems through its flagship product, the Halo platform, which aggregates all available communication paths into one resilient, encrypted pipe for beyond visual line of sight (BVLOS) control, video and telemetry.
What is the broker saying?
Bell Potter highlights that Elsight delivered a full-year result that was a touch softer than expected. This was driven by higher than expected costs. It explains:
ELS (pre) reported revenue growth to $22.8m. Gross margin came in at 76.5% (BPe 76.3%). Opex of $9.6m was higher than BPe of $8.7m driven by stronger than expected share-based payments. Underlying EBIT was $7.5m (12% miss vs. BPe). ELS reported statutory NPAT of $7.5m which included favourable tax loss carry forwards offset partially by a $1.8m negative FX movement. Adjusting for these items, Underlying NPAT was $6.1m, $0.7m lower than BPe.
However, the broker remains positive and has still upgraded its earnings estimates for the coming years. It also believes that a further upgrade could be due in time. Bell Potter explains:
We have revised EBIT +22%/+11%/+1% over CY26/27/28e, reflecting a higher Hardware revenue growth rate in CY26e partially offset by higher opex assumptions. We have raised revenue on reduced conservatism with regard to the likelihood of repeat orders from the European drone defence OEM, ELS' key customer in CY25.
If the current pace of orders from this customer continues then our revenue forecast will likely be upgraded further. In turn, we acknowledge the level of customer concentration embedded in our forecasts and as a result have raised WACC to 12.0% (prev. 9.8%), to account for the inherent risks of customer concentration.
Big potential returns
According to the note, Bell Potter has retained its buy rating on the ASX stock with an improved price target of $5.80 (from $5.50).
Based on its current share price of $4.51, this implies potential upside of almost 30% for investors over the next 12 months.
The broker concludes:
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 115% hardware sales revenue growth estimate.
