DroneShield Ltd (ASX: DRO) shares have been hammered, falling 19% over the past month, 39% year to date, and 54% over 12 months.
But after disappointing 2026 guidance, could the sell-off of the ASX tech stock have gone too far?
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Counter-drone spending leads to orders
DroneShield's technology is designed to detect, identify, and defeat drone threats, with customers across military, government, law enforcement, and critical infrastructure.
The demand story is already becoming tangible. By late July, the company had secured $206 million of committed FY26 revenue, almost matching its entire FY25 revenue with five months of the year still remaining.
It's promising and crucial for DroneShield shares that counter-drone spending is translating into real orders, rather than simply representing an attractive future market.
The next challenge is delivering as demand grows
The company is expanding its global production footprint, including establishing manufacturing operations in Europe, and expects combined annual production capacity to reach around $2.4 billion by the end of 2026.
DroneShield is also continuing to invest in its technology. Management has described its current product rollout as the most significant product cycle in the company's history, with further releases expected through 2027.
Its existing hardware can also gain additional capabilities through software subscriptions as the company's radio-frequency intelligence dataset grows.
If the counter-drone market continues expanding, the combination of technology, manufacturing scale, and an established customer base could put DroneShield in a strong position to capture that demand.
There's a big catch: valuation
DroneShield shares trade on high P/E multiples, meaning investors are already pricing in substantial future growth. That can be justified if the company becomes considerably larger over the long term. However, it also leaves little room for disappointment.
Investors got a reminder of that on 28 July. DroneShield released a calendar 2026 trading update alongside a new contract announcement. While the operational numbers were strong, management's guidance disappointed the market.
The company expects FY26 revenue of $250 million to $270 million, representing growth of 15% to 25% on FY25. The problem? Consensus expectations had been closer to $323 million.
The result was a sharp DroneShield share price decline, with profit-taking adding to the pressure.
Short sellers are also taking aim. DroneShield is currently the most shorted ASX share, with short interest of 15.7%.
What do brokers think?
No wonder analysts are divided on DroneShield shares.
TradingView data shows two of four brokers at strong buy and two at sell or strong sell. The average price target is $2.13, implying about 12% upside, while the most bullish target of $2.80 implies roughly 47% upside. The bearish target of $1.60 suggests another 16% downside.
Canaccord Genuity is among the bulls, retaining a buy rating and $2.80 price target.
So, is there upside left? There could be, but DroneShield now needs to prove it can convert its enormous opportunity into sustained earnings growth.
