DroneShield Ltd (ASX: DRO) shares slumped further into the red at the close of the ASX on Wednesday afternoon.
After the bell rang on the sharemarket for the day, DroneShield shares ended 4.36% lower at $3.07 a piece.
The decline means the ASX defence shares are now down 18% over the past month. And are around 8% lower for the year-to-date.
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What has dragged DroneShield shares lower over the past month?
It looks like a combination of governance and regulatory has dampened investor sentiment recently.
In mid-May, DroneShield announced that it had received a notice from the Australian Securities and Investments Commission (ASIC) asking for reasonable assistance with an investigation under the Corporations Act.
The investigation relates to market announcements and share trading between the 1st and 20th or November 2025.
The company made several announcements during this time, including new contract announcements and news that several executives were selling DroneShield shares through on-market trades.
It's unclear if any of these are under investigation by ASIC.
The company said it will cooperate fully and that it is unclear what action, if any, may result.
Governance issues and regulatory investigations often weigh heavily on investor confidence, especially for growth stocks where sentiment is already important.
Investors weren't happy with the notice and the share price crashed around 20% in just over a week.
The update came amid a background of signs of easing conflict in the Middle East. While heightened conflict can increase interest in defence technology, particularly counter-drone systems, signs of easing can do the opposite.
It looks like investor sentiment has now cooled.
Is there any upside ahead? Or is this the beginning of the next downturn?
It's not only investor sentiment about DroneShield shares which has shifted, analysts have also changed their outlook.
In late-May, TradingView data showed two analyst ratings – one as a strong buy, and the other as a hold. The average target price was $4.10.
But today shows a very different story.
The latest TradingView data shows three analysts ratings – one is a strong buy, one a sell and one a strong sell.
This is a huge shift in sentiment.
The average target price is also lower at $3.29. Although it still implies a potential 7% upside at the time of writing.
The company has experienced staggering financial growth, notably surging revenues from a massive surge in global counter-drone demand.
But it looks like analysts now view the DroneShield shares are trading at fair value.
