DroneShield Ltd (ASX: DRO) shares are climbing higher in Tuesday morning trade.
At the time of writing, the shares are up around 1.7% to $2.97 a piece and reversing losses shed on Monday.
The increase is good news for investors, but it's been a volatile ride for the ASX defence stock this year, and there is some way to go before the share price returns to the highs seen in January.
DroneShield shares have fluctuated anywhere between $4.74 in January and a low of $2.77 last week. At the current trading price, the stock is down over 10% year to date and 37% from its January 2026 peak.
Thanks to last year's rally, the shares are still around 69% higher than 12 months ago.
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Why are DroneShield shares tumbling?
There has been a huge shift in sentiment for DroneShield shares over the past couple of months.
The counter-drone technology stock has attracted a lot of interest over the past year. Investors flocked to defence-related shares when governments around the world hiked their defence budgets and geopolitical risk worsened.
But now there's concern that DroneShield's future growth may not be large enough to justify the latest share price. Even a flurry of contract wins hasn't been enough to convince investors.
At the same time, it looks like a combination of recent governance and regulatory issues and cooling conflict in the Middle East has dragged investor sentiment down further.
DroneShield shares climbed higher during the first week of May, but then took a U-turn after the company announced that the Australian Securities and Investments Commission (ASIC) had requested DroneShield to provide reasonable assistance in connection with an investigation under the Corporations Act.
The investigation relates to market announcements and share trading in 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. But it's unclear if any of these are under investigation by ASIC.
And all this has happened 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.
What do analysts forecast for the shares now?
It's not only investors who have pulled back from DroneShield shares, but many analysts have also downgraded their outlook for the once-booming ASX defence company.
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 how much analyst sentiment has shifted.
The latest TradingView data shows three analyst ratings – one is a strong buy, and the other two rate DroneShield shares as a sell or strong sell. The average target price is now $3.29. Although after the last share price plunge, the average target price still implies around an 11% upside, at the time of writing.
Some are even more bearish and think the shares have the potential to drop around 23% to $2.28 over the next 12 months.
