The conflict in Ukraine has highlighted the growing importance of drone warfare and anti-drone technology in modern military operations. With global defense spending on the rise, investors are increasingly interested in companies that specialize in this sector. Three notable stocks listed on the Australian Securities Exchange (ASX) stand out for those looking to capitalize on this trend.
DroneShield Ltd: A Volatile Player
DroneShield Ltd (ASX: DRO) is arguably the most well-known company in the drone technology space on the ASX. Its stock has experienced significant fluctuations over the past year, soaring from a low of 58.5 cents to a peak of $6.70 before retreating to below $3 recently. The volatility was exacerbated by major share sales from executives and a miscommunication regarding contract announcements.
Analyst Christopher Watt from Bell Potter Securities has a hold recommendation on DroneShield, citing short-term challenges but noting that its fundamentals remain “sound.”
Elsight Ltd: Communication at Its Core
Elsight Ltd (ASX: ELS) serves as a crucial supplier of communication modules for drone manufacturers. In mid-December, the company announced contracts exceeding US$20 million for deliveries scheduled between January and April 2024. This reflects robust demand for its Halo platform, which facilitates “beyond visual line of sight” drone operations.
According to the company, the Halo module ensures that uncrewed aerial and ground systems maintain secure connections with command centers, regardless of terrain or network limitations. The technology has been proven in demanding environments, providing military and commercial operators with reliable communication capabilities.
Elsight’s shares have surged more than tenfold over the past year, currently priced at $3.17. Given this rapid increase, Bell Potter has set a more conservative price target of $2 for the stock.
Electro Optic Systems Ltd: Securing Contracts
Another player in this burgeoning market is Electro Optic Systems Ltd (ASX: EOS), which has also secured significant contracts recently. In mid-December, the company announced a new international contract valued at $32 million for its R400 Remote Weapon System. This builds on previous wins, including a $125 million contract for a high-energy laser weapon announced in August and another R400 order worth $108 million in October.
Bell Potter has indicated that increasing global capital allocation toward counter-drone capabilities could lead to upward revisions in revenue estimates for EOS. Its current price target stands at $8.10, while shares trade at approximately $8.82.
Investors considering these stocks should conduct thorough research and consider the inherent risks associated with defense sector investments. As the landscape for drone technology continues to evolve, companies like DroneShield, Elsight, and Electro Optic Systems are positioned to play key roles in shaping the future of warfare and defense.
