The DroneShield Ltd (ASX: DRO) share price suffered a sharp fall on Tuesday.
The counter-drone technology company sank 13% to $1.81, taking its decline over the past 12 months to around 40%.
Has that weakness created a buying opportunity?
Image source: Getty Images
Why did DroneShield shares fall?
The sell-off followed a trading update that contained plenty of growth, but also gave investors reasons to remain cautious.
DroneShield expects first-half revenue of $125.8 million, up 74% on the prior corresponding period. Its committed FY26 revenue has reached $206 million, equal to 95% of the revenue generated across all of FY25.
Management now expects FY26 revenue of between $250 million and $270 million, representing growth of 15% to 25%.
Those figures show the business is still expanding quickly. However, I think the market may have focused on the expected first-half gross margin of 60%, down from 65% a year earlier.
DroneShield attributed the decline to sales mix, currency movements, third-party hardware, and costs identified during its production relocation and new business system rollout.
I think investors may also have hoped for a stronger full-year outlook after the company's earlier growth. Expectations remain high, which can produce severe share price reactions when an update falls short of what the market imagined.
What caught my attention?
I think there was still plenty to like. DroneShield announced $23.2 million of European military contracts covering vehicle-mounted counter-drone systems, subscriptions, warranties, and services. Around $21 million is expected to contribute to FY26 committed revenue.
The company also introduced RfAI-3, the latest version of its radio frequency detection engine.
The technology is designed to identify emissions from drones that are not already included in existing signature libraries. I think that capability could become increasingly valuable as drones, signals, and tactics continue changing.
Initial next-generation hardware releases are expected during the second half of 2026, with further products planned for 2027.
I also like the recurring revenue opportunity. Software, subscriptions, and long-term services contributed an estimated $14.2 million during the first half. This represents 11.3% of total revenue. There is still work ahead before software becomes a much larger part of the business, but I feel the early progress is encouraging.
Is the share price good value?
At $1.81, DroneShield shares are cheaper, but they are not obviously cheap.
Based on current CommSec consensus estimates, the company is valued at approximately 70 times FY26 earnings, 42 times FY27 earnings, and 24 times FY28 earnings.
Those later multiples could prove attractive if DroneShield delivers the expected growth, protects margins, and turns its expanding hardware base into more subscription revenue.
Foolish takeaway
I think Tuesday's fall has created a buying opportunity for patient growth investors.
The latest update did not remove the risks, and I expect the DroneShield share price to remain highly volatile. However, revenue is growing, committed work is substantial, and the next product cycle could support further expansion.
At $1.81, I think the potential long-term return has improved enough to justify buying, provided investors keep the position size sensible and can tolerate further sharp falls.
