DroneShield Ltd (ASX: DRO) shares were under significant pressure on Tuesday.
The counter-drone technology company's shares ended the session 13% lower at $1.81.
The catalyst for this was an update which revealed strong growth but also signs of strong competition.
Is this a buying opportunity? Let's see what Bell Potter is saying about the popular ASX stock.
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What is the broker saying?
Bell Potter highlights that DroneShield has released a market update and provided guidance which was softer than expected. It said:
1H26 revenue is expected to be $125.8m, up 74% YoY and CY26e revenue is expected to be in the range of $250-270m up 15-25% on CY25, 17-23% below VA consensus of $323m. As at 28 July 2026, CY26 committed revenue were $206m (up from $161m in late May 2026) implying DRO expects $44-64m of work to be won and then delivered over the next five months. Orders secured in the balance of 2026, and particularly ones in the final months of the year, are more likely to form part of Committed Revenue in CY27 and beyond.
There remains upside to guidance from orders arising outside of the sales pipeline. DRO estimates 1H26 gross margin to be 60% down from 65% in the PCP. The compression is driven by increased mix to third party hardware, FX movements and raw material impairment. DRO is still targeting a gross margin of ~65%, supported in 2H26 by next-gen hardware sales and increasing SaaS mix.
The broker was also disappointed with the lack of wins in the United States during the FIFA World Cup. It was expecting significantly more contract wins than the sole Kansas City contract. It commented:
DRO acted as the primary threat and detection layer for Kansas City during the 2026 FIFA World Cup, however, of the 11 states awarded US$325m for C-UAS protection, this was the only major contract won by DRO, likely representing US$5-10m.
This result, which was below our expectations, signals lower levels of share for DRO initially in the US Public Safety market than that held by incumbent Public Safety suppliers, such as Axon Enterprises.
Should you buy DroneShield shares?
In response to the update, Bell Potter has taken an axe to its valuation.
However, due to recent share price weakness, it still sees plenty of value in DroneShield shares.
As a result, the broker has retained its buy rating with a reduced price target of $2.50 (from $4.80).
Based on its current share price of $1.81, this implies potential upside of 38% for investors over the next 12 months.
Commenting on its investment thesis, Bell Potter concludes:
We expect continued contract wins, particularly from Europe where DRO has a leading presence in the C-UAS EW vertical, supported by high moat next-gen products. Retain Buy, TP lower to $2.50, EBITDA changes: -97%/-75%/-50%.
