Electro Optic Systems (ASX:EOS): Its been a 3 months with a 300% share price spike and $125m contract win, but can the run last?

Electro Optic Systems (ASX:EOS) has quadrupled in just a few months, making it a >$900m company. It is no accident – it is one of the most prominant defense stocks, set to benefit as government spending goes up and up and up.

Of course, that doesn’t mean it is guaranteed to succeed. Investors have every right to be optimistic after a major contract win (worth over $100m) that saw shares surge 40% in a single day. But is the company in as good a shape as the share price spike suggests it is?

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Overview of Electro Optic Systems

EOS’ history actually goes back over 4 decades through the privitisation of part of the Australian government’s space activities and its listed life spans over 2 decades. It has 3 core segments:

Firstly, defence Systems: which provides wire‑control systems, surveillance, remote weapon systems, energy‑laser weapons, counter-drone systems, land and marine lethality systems. The counter-drone capability has been key, its recent Slinger System has multidirectional capability, has comprehensive diagnostics and can shoot up to 1km.

Second, space systems which includes space domain awareness (tracking, characterisation of objects), satellite laser ranging, precision optics, observatories, optical communications, and space debris management systems.

And the third is communications including optical and microwave systems, SATCOM‑on‑the‑move, radio/satellite systems. Key to this division is EM Solutions which EOS bought in 2019 for $29m. Its specialist systems are capable of operating in extreme environments.

From Zero to Hero

The company has built up operations in Australia, the U.S., Singapore, the Middle East, Germany, and the Netherlands. We’ve all known defence spending is going up and up and up amid heightened geopolitical threats. But EOS has not always gone so well.

COVID-19 hit the company’s assembly facilities and those of its suppliers in the supply chains. These issues continued post-COVID and it led to a board overhaul in mid-2022 which implemented a cost reduction program. This worked.

But only in 2025 did things really take off. A groundbreaking contract announced in early August 2025 capped things off. The announcement was the world’s first export of a 100 kW laser anti-drone weapon system to an undisclosed NATO European country, catalysed a surge in share price—rising over 40% on the announcement alone.

It comes with:

• Rapid drone neutralisation (up to 20 per minute at 2–5 km range),
• Extremely low cost per shot (under 10 cents vs. $0.5–2 million for missiles), and
• Vertical engagement capability, critical in modern layered air defence.

The landmark order positions EOS at the forefront of laser-based defence solutions; it’s likely to pursue naval variants and higher-power (150 kW) systems.

This was before you consider rising defence spending which has helped many of EOS’ peers such as Austal. ‘America First’ means greater defence capabilities. Moreover, NATO has upped its spending.

While the company is yet to report FY25 results, investors have reason to expect it could edge closer to profitability. EOS posted a smaller loss in 2024 (about A$18.7m, down from a higher previous loss), while revenues climbed nearly 9% to A$176.6m.

Investors had been worried about the company’s debt burden. EOS carried total debt of approximately A$47.9m at the end of 2024, which was partly offset by around A$41.1 million in cash, resulting in a net debt of roughly A$6.9 million. Much of this was owed to Soul Pattinson. Early in 2025, it sold EM Solutions for $158.6m and paid off its debt.

With no borrowings and substantial cash reserves, the company is now well positioned to fund future expansion in its core Defence and Space Systems segments without being constrained by debt servicing.

Conclusion

With greater investment into defence and space tech globally, EOS is well-placed – but continued success depends on additional contracts, cost controls, and execution. Defence is a good investment opportunity, but it is not certain that all companies would benefit.

We’d be cautious about this company due to the radical run in 3 months. We’d stick to companies like Austal that have recorded more stable growth over time.