DroneShield Ltd (ASX: DRO) has been one of the most talked-about defence technology shares on the ASX in the 2020s.
That attention is understandable. The company sits in a market shaped by drones, electronic warfare, national security, and the growing need to protect military and civilian assets from aerial threats.
And after a major share price decline, investors face a difficult question. Are DroneShield shares a buy, hold, or sell?
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DroneShield shares have fallen hard
DroneShield shares are trading around $2.29 at the time of writing.
That leaves the stock down about 65% from its 52-week high.
A fall of that size can make investors nervous, especially in a growth share where expectations have been high. It also changes the valuation discussion.
According to CommSec consensus estimates, DroneShield is forecast to generate earnings per share of 2.6 cents in FY26, 4.3 cents in FY27, and 7.4 cents in FY28.
Based on the current share price, that puts the stock on a price-to-earnings (P/E) ratio of around 88 times FY26 earnings, 53 times FY27 earnings, and 31 times FY28 earnings.
The near-term multiples are still high despite the share price decline.
But the FY28 valuation does not look excessive to me if DroneShield can keep scaling and become a larger, more profitable defence technology business.
Why I would buy
I think DroneShield shares are a buy for investors with a high tolerance for risk.
The reason is the market opportunity.
Drones have changed the way governments, defence forces, airports, prisons, critical infrastructure operators, and security agencies think about protection.
They can be used for surveillance, disruption, smuggling, attacks, and battlefield operations. That creates demand for systems that can detect, track, identify, and respond to drone threats quickly.
DroneShield is trying to become a trusted provider in that market.
I also like that the business is not only about hardware. Increasing software revenue could improve the quality of the revenue base over time, especially if customers keep paying for upgrades, subscriptions, support, data, and system improvements.
That could make the business more valuable than a simple equipment supplier.
What investors need to watch
DroneShield still has plenty to prove. The company needs to keep winning contracts, delivering products, expanding capacity, and turning demand into profits. Defence customers can take time to make decisions, and contract timing can create uneven revenue.
Competition is another risk. Counter-drone technology is attracting attention globally, and larger defence companies may push harder into the market.
There is also valuation risk to consider. Even after a 65% fall, DroneShield is still priced for significant growth. If earnings disappoint, the share price could fall further.
That is why position sizing is important. I would view DroneShield as a speculative growth share rather than a core blue-chip holding.
Foolish Takeaway
I would call DroneShield shares a buy, but only for investors who can handle volatility.
The share price fall has made the valuation more reasonable, particularly if the company can deliver the growth currently expected over the next few years.
The counter-drone market appears to have a long runway, and DroneShield has a strong position in a field that is becoming more important to defence and security customers.
There will be bumps along the way. Contract timing, execution, competition, and valuation all need watching. Still, for patient investors willing to accept the risks, I think DroneShield shares are worth buying after this heavy fall.
