DroneShield Ltd (ASX: DRO) shares have been on a wild ride over the past year.
The ASX defence stock finished Tuesday down 1.4% at $2.88 a share, a far cry from its 52-week high of $6.70 reached in October last year.
To be fair, shareholders who got in before last year's rally are still sitting pretty. DroneShield shares remain up around 65% over the past 12 months. But 2026 has been a different story. The stock is down 6.5% year to date and has fallen 9% over the past month alone.
So, what's behind the latest bout of weakness? And is there any sign that sentiment could turn around?
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Why are DroneShield shares falling?
The simple answer is that investors have gone from being wildly enthusiastic to considerably more cautious.
Not long ago, DroneShield shares were one of the hottest stocks on the ASX. Defence spending was booming globally, geopolitical tensions were escalating, and investors couldn't get enough exposure to military technology.
The company certainly delivered on growth. DroneShield generated $216.5 million of revenue in 2025, up from just $57.5 million a year earlier. It also expanded its international footprint and entered 2026 with strong momentum.
Since then, the company has announced a US$24.9 million contract linked to the US Department of War and revealed it had secured $155 million of committed 2026 revenue as of 20 April.
Normally, that sort of news would have investors cheering. Instead, many are asking a different question: how much future growth is already priced into the share price?
That's the challenge facing DroneShield today. Even a steady stream of contract wins hasn't been enough to reignite the excitement that fuelled last year's rally.
Governance concerns and geopolitics add pressure
The situation became even more complicated in May.
After initially rallying during the first week of the month, DroneShield shares abruptly changed direction after the company disclosed that the Australian Securities and Investments Commission (ASIC) had requested reasonable assistance in connection with an investigation under the Corporations Act.
The investigation relates to market announcements and share trading activity during November 2025. DroneShield released several announcements during that period, including contract updates and disclosures that senior executives had sold shares through on-market transactions. At this stage, it remains unclear which matters are being examined.
At the same time, investors have been digesting signs that tensions in the Middle East may be easing. While conflict is never good news, heightened geopolitical uncertainty tends to increase investor interest in defence stocks and counter-drone technology. When those tensions cool, enthusiasm for the sector can cool as well.
What are analysts saying?
Analyst sentiment has also shifted noticeably.
In late May, TradingView data showed one strong buy rating and one hold recommendation, with an average price target of $4.10.
Today, the picture looks much less optimistic. The latest data shows two strong buy ratings, but the other two analysts rate DroneShield shares as a sell or strong sell. The average target price has fallen to $3.41, which suggests a 18% upside.
That still implies some upside from current levels, but not everyone is convinced. The most bearish analyst believes DroneShield shares could slide as low as $2.28 over the next 12 months. That is more than 20% lower than the current share price.
For now, investors appear to be waiting for proof that DroneShield can keep converting strong industry demand into sustained earnings growth.
