Is Droneshield a Good Investment After a 40% Pullback

Record A$25 Million Deal Puts DroneShield Back on the Radar After 40% Pullback

DroneShield (ASX: DRO) has seen a sharp rise in recent months, but the stock has now pulled back around 40 percent as both institutional and retail investors lock in profits after a strong run. However, last week’s announcement could mark a turning point. The company revealed a new A$25 million contract with a government customer in Latin America, its largest order to date.

While the client’s identity remains undisclosed, it is a long-standing customer that has previously made seven separate purchases totalling A$3 million. This new contract therefore, represents a significant scale-up in engagement, suggesting strong satisfaction with DroneShield’s technology and growing demand for counter-drone solutions.

The delivery of products and the associated cash receipts are scheduled for the fourth quarter of FY2025 and the first quarter of FY2026. For investors, this contract not only reinforces DroneShield’s commercial credibility but also highlights the company’s growing presence in the emerging defence market. What does this mean for the stock?

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DroneShield’s Largest Latin American Deal Marks Powerful Validation of Its Growing Customer Pipeline

This new contract is a strong validation of DroneShield’s existing customer pipeline. It highlights how the company is not only expanding its reach but also deepening relationships with repeat clients through larger, higher-value deals that support recurring revenue growth. What’s equally important is the geographic diversification this represents. Revenue momentum is no longer concentrated in Australia and the United States; emerging regions like Latin America are now contributing meaningfully to growth.

To put it in perspective, DroneShield reported A$77 million in customer receipts in Q2 FY2025, and this single contract already accounts for roughly one-third of that figure. It’s a positive signal heading into Q4, showing that contract values are scaling and the business is building strong momentum across multiple markets.

What Is the Price We Pay For DRO Growth Story

After a sharp 40% pullback largely driven by profit-taking rather than any deterioration in fundamentals, DroneShield could present a meaningful entry point. It’s important to note that the stock could still decline, which we have seen today as well, after a further pullback.

Consensus forecasts for FY2026 point to revenue of about A$299 million, representing a 43 percent year-on-year increase. Gross margins are expected to continue expanding, supported by the rollout and commercial ramp-up of DroneShield’s SaaS offerings, which should also drive operating leverage.

When we compare growth expectations with valuation metrics, the picture becomes more interesting. EBITDA is projected to grow 78 percent in FY2025, yet the EV/EBITDA multiple for FY2025 stands at 67.5x. This implies an EV/EBITDA-to-growth ratio (“PEG-style”) of around 0.86x, a level that typically suggests the valuation is not overly stretched, provided the company executes as planned.

In essence, investors at current levels are not paying an excessive premium for DroneShield’s growth story. However, for the stock to re-rate meaningfully higher, management will need to deliver on its growth and margin expansion targets in the coming quarters.