It has been another bruising week for investors in DroneShield Ltd (ASX: DRO) shares.
The ASX defence stock was down another 5% to $2.29 in Friday afternoon trading, extending its weekly decline to roughly 15%.
The recent sell-off has been relentless. DroneShield shares have tumbled around 28% over the past month, erasing much of this year's spectacular rally.
Even so, the ASX stock remains up approximately 4.6% over the past 12 months.
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Why are DroneShield shares falling?
The biggest shift has been investor sentiment.
Earlier this year, DroneShield shares were one of the market's hottest defence plays. Rising geopolitical tensions, growing military spending across Europe and elsewhere, and surging demand for counter-drone technology helped fuel a powerful rally in the company's share price.
But markets don't just price in growth — they price in expectations.
Following the stock's rapid rise, investors appear to have started questioning whether DroneShield can grow quickly enough to justify its lofty valuation. That's left the shares particularly vulnerable to any disappointment.
Perhaps most notably, a steady stream of contract announcements has done little to halt the selling. Normally, fresh customer wins would be expected to support a high-growth defence stock.
Instead, investors have largely shrugged them off, suggesting concerns now centre more on valuation than on the strength of the underlying business.
Adding to the pressure has been an easing in geopolitical tensions in the Middle East, reducing some of the urgency around defence-related investments after months of heightened enthusiasm.
ASIC investigation rattled investors
Governance concerns have also weighed on sentiment. A major turning point came in May when DroneShield revealed that the Australian Securities and Investments Commission (ASIC) had requested the company provide reasonable assistance in connection with an investigation under the Corporations Act.
The investigation relates to market announcements and share trading during November 2025. Importantly, DroneShield has not been accused of wrongdoing. Nevertheless, regulatory investigations often create uncertainty, and uncertainty is something investors rarely reward.
Combined with the elevated valuation of DroneShield shares, the announcement was enough to trigger a sharp reversal in momentum.
So, are DroneShield shares a buy?
Broker opinion is anything but unanimous. According to TradingView data, just four analysts currently cover DroneShield, and they're evenly split. Two have strong buy recommendations, while the other two rate the stock as either a sell or strong sell.
That wide divergence highlights just how polarising the investment case has become. Despite the split, analysts generally agree there is upside from current levels. The average 12-month price target sits at $3.41, implying potential upside of around 49%.
The most bullish analyst has a target price of $4.80, suggesting the shares could more than double from current prices. Among the optimists is Canaccord Genuity, which last week reaffirmed its buy rating on DroneShield shares. The broker has a 12-month price target of $3.75, implying upside of approximately 62%.
