It has been a brutal 12 months for DroneShield Ltd (ASX: DRO) shares.
The DroneShield share price is down another 1.09% to $1.59 today and is now sitting around its 52-week low.
The stock has fallen more than 50% over the past year and almost 49% in 2026.
But at this price, I think the risk-reward is becoming much more interesting.
I certainly wouldn't make DroneShield one of my biggest holdings. But as part of a diversified portfolio, I'd be happy to buy some shares around these levels.
Here's why.
Image source: Getty Images
The demand is there
The biggest reason I remain bullish is simple. Drones aren't going away.
They are playing a bigger role in modern warfare, border security and the protection of critical infrastructure.
That means governments and defence customers need systems that can detect, track and stop them.
DroneShield is already turning that demand into revenue.
Its latest update showed FY26 committed revenue had reached $251 million, while another $46 million was committed for FY27 and beyond.
First-half revenue jumped 74% to $125.8 million, and recurring revenue climbed 229% to $11.5 million.
The company has also received its first order for the new RfRecon product from an existing Western European military customer.
To me, that is exactly what I want to see. If those orders keep building, I think the current share price could end up looking pretty cheap.
Could short sellers send the shares higher?
This is another part of the setup I find very interesting.
The latest short-selling data shows 15.46% of DroneShield shares are currently sold short, making it the second-most shorted stock on the ASX.
That's a huge number of investors betting against the company.
Of course, short interest is there for a reason. DroneShield is still loss-making, with first-half underlying EBITDA of $12.4 million in the red and a statutory loss of $32.2 million.
But keep in mind, heavy short interest can work both ways.
If DroneShield announces a large new contract, some short sellers may decide they no longer want to stay in the trade.
Buying shares back to close those positions could add extra demand at the same time other investors are buying the news.
And with short interest this high, I think a genuinely good announcement could send the share price higher very quickly.
Would I buy today?
At $1.59, I would.
TipRanks shows 4 ranked analysts covering the stock, with 2 buys and 2 sells. The average 12-month price target is $1.98, about 25% above the current price.
Bell Potter sits at $2.40 and Canaccord Genuity at $2.60.
Yes, there are still plenty of risks, particularly around profitability, margins and execution.
That is why I'd keep the position relatively small.
But I think the potential upside makes the risk worthwhile.
