Elsight (ASX: ELS) Surges After A$32M Contract Win: Is This 10-Bagger Defence Stock Still a Buy?

Elsight (ASX: ELS) continues to deliver for shareholders, with the stock up roughly 1,000 per cent over the past twelve months. The latest catalyst is a US$21.2 million (~A$32 million) contract with a European defence manufacturer, with deliveries scheduled between January and April 2026. For a company that has now secured thirteen times the contract value of 2024 in a single year, this isn’t just another deal; it signals that Elsight’s technology is becoming a core part of how modern militaries operate their drones.

The key question for investors now is straightforward: after such an extraordinary run, does Elsight still offer attractive upside, or has the market already priced in the good news?

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Halo Solves a Critical Problem for Military Drones

Elsight’s flagship product, Halo, addresses a simple but crucial challenge. Drones become useless when they lose connection to their operators. For military missions where failure isn’t an option, this is a serious problem.

Halo fixes this by combining multiple communication channels- cellular networks, satellite links, and radio frequencies- into one reliable connection. If one channel drops out, the others keep the drone connected. This redundancy is exactly what defence customers need for missions in contested environments where signals can be jammed or disrupted.

The technology has earned validation from major players. Lockheed Martin integrated Halo into its Indago 4 drone system in 2024. Elsight was also selected as one of just eight companies from 223 global applicants for the Northrop Grumman-FedTech Accelerator program, which opens doors to the massive US defence market.

We believe this growing list of blue-chip partnerships creates a strong competitive position. Once Halo becomes embedded in a military program, switching to a competitor becomes difficult and expensive, setting up Elsight for long-term recurring revenue.

The Numbers Tell a Compelling Growth Story

Elsight’s financial progress in 2025 has been remarkable. The company achieved profitability in Q3 for the first time in its history, with quarterly revenue hitting US$8.7 million and gross margins reaching 82% for its software and cloud services. This margin expansion shows that Elsight’s business model scales efficiently as volumes increase.

The pipeline looks equally strong. Management reports US$157 million worth of opportunities in various stages of discussion and qualification. The company has also advanced to Phase 3 of the US Defence Innovation Unit (DIU) program under ‘Project G.I.’, which could unlock significant American military contracts. For a company of Elsight’s size, cracking the US market would be transformational.

The Investor’s Takeaway

The bull case is clear: accelerating contract wins, exceptional margins, a deep pipeline, and partnerships with defence giants like Lockheed Martin. CEO Yoav Amitai says Elsight enters 2026 with “strong momentum,” and the numbers support that view.

However, the valuation requires careful consideration. At A$2.92, Elsight trades well above Bell Potter’s A$2.00 price target, having pulled back slightly from a fresh 52-week high of A$3.15 set during Wednesday’s session. After gaining 1,000 per cent in twelve months, in our view, much of the near-term growth is already reflected in today’s share price.

For growth-focused investors comfortable with higher risk, Elsight offers genuine exposure to a defence technology winner with room to grow further. But we believe those seeking better entry points may benefit from patience, waiting for pullbacks rather than chasing the stock at current levels. The fundamentals are strong, but valuation discipline matters, especially after such an extraordinary run.