The defence industry has been a great place to invest over the past 12 months.
But if you thought you'd missed the boat, think again.
That's because Bell Potter believes one ASX defence stock with a "high ROIC business model" could deliver market-beating returns.
Image source: Getty Images
Which ASX defence stock?
The stock that Bell Potter is urging investors to buy is Elsight Ltd (ASX: ELS).
It is a growing supplier of communication modules to drone manufacturers. Bell Potter notes that Elsight offers advanced communication components for unmanned systems through its flagship product, the Halo platform.
Bell Potter notes that the ASX defence stock has released its quarterly update this week. While the result had no surprises, Bell Potter highlights that Elsight's US opportunity is building. It commented:
ELS reported revenue of US$11.4m in 1Q26, a 12x increase YoY and a fifth consecutive quarter of QoQ revenue growth. The result compares to our $25.3m estimate for 1H26, suggesting ELS needs another quarter of revenue growth to hit our number, achievable given ELS likely delivered a large part of the units from the $21m order in April 2026. Active dialogue continues with the customer on follow-on orders.
ELS is observing growing demand and traction in the US, with engagement cadence across both end-user government programs and OEM customers increasing materially during the quarter, reflecting the impact of the expanded US sales team. Management expects these elevated engagement levels to support revenue conversion in coming quarters. DIU Phase 3 conclusion was delayed slightly due to the Iran conflict with the program expected to conclude in H1 2026 and lead to orders. ELS has secured access to SOCOM's Other Transaction Authority (OTA) contracting vehicle, positioning ELS for fast procurement in the US.
Time to buy?
According to the note, the broker has retained its buy rating on the ASX defence stock with an improved price target of $8.10 (from $8.00).
Based on its current share price of $6.92, this implies potential upside of 17% for investors over the next 12 months.
Commenting on the company and its high ROIC business model, Bell Potter said:
We retain Buy. We believe ELS has developed a market leading product that is leveraged to the proliferation of unmanned systems in both a defence and commercial context. We believe ELS shares offer relative value versus listed peers at 43x CY26e EV/EBIT given its recurring revenue, high ROIC business model and defensible niche. We expect the key driver for ELS shares will be revenue upgrades from OEM 1(>80% of CY25 revenue) production capacity expansion and BlueUAS list entry.
