Last Update04 Aug 25Fair value Increased 28%
The increase in DroneShield’s consensus price target to A$3.70 reflects stronger profitability as net profit margins improved and higher future earnings expectations, despite a richer valuation multiple.
What's in the News
- DroneShield Limited expected to report Q2 2025 results on August 5, 2025.
Valuation Changes
Summary of Valuation Changes for DroneShield
- The Consensus Analyst Price Target has significantly risen from A$2.90 to A$3.70.
- The Future P/E for DroneShield has significantly risen from 58.44x to 65.41x.
- The Net Profit Margin for DroneShield has significantly risen from 22.24% to 24.87%.
Key Takeaways
- Surging global demand, regulatory momentum, and diversified defense contracts position DroneShield for robust, recurring revenue growth and greater earnings stability.
- Proprietary technology, expanding SaaS offerings, and margin improvements bolster competitive advantages and support long-term operating leverage.
- Heavy reliance on defense and government contracts, rapid cost escalation, product relevance risks, and intensifying competition threaten profitability and sustainable growth absent regulatory clarity and successful diversification.
Catalysts
About DroneShield- Engages in the development, commercialization, and sale of hardware and software technology for drone detection and security in Australia and the United States.
- Accelerating global adoption of drones in both military conflict and civilian environments is driving sustained, broad-based demand for advanced counter-drone technologies, which is translating into a record-high sales pipeline ($1.2 billion) and increasingly geographically diversified contract wins-this should underpin strong multi-year revenue growth.
- Worldwide increases in defense spending and heightened geopolitical tensions (Asia-Pacific, Europe, Latin America) are fueling large-scale programs (e.g., Australia's LAM156, new European opportunities), with DroneShield well positioned-successful participation could result in large multi-year contracts, enhancing order book visibility and long-term earnings stability.
- Legislative and regulatory momentum toward mandating counter-UAS systems for critical civilian infrastructure (airports, stadiums, data centers) is in early stages but gathering pace-early exposure and technical integration position DroneShield to capture a growing, recurring revenue stream from this nascent but potentially massive market, with upside to margin expansion via high-value subscription software and service contracts.
- Sustained investment in proprietary technology (AI/ML-driven detection, frequent software and hardware refresh cycles) and a large, experienced engineering team create significant barriers to entry and ensure competitive positioning against rapidly evolving drone threats, supporting continued gross margin strength and underpinning future operating leverage as R&D costs increasingly shift to capitalized development.
- Expansion of the recurring/subscription revenue base (targeting ~50% of revenue in 5 years, up from ~5% currently), driven by the attach rate on new product generations and growing SaaS adoption, is expected to increase net margins and earnings quality, reducing earnings volatility and enhancing DroneShield's valuation multiple over the medium-to-long term.
DroneShield Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming DroneShield's revenue will grow by 71.6% annually over the next 3 years.
- Analysts assume that profit margins will increase from -2.3% today to 22.2% in 3 years time.
- Analysts expect earnings to reach A$65.3 million (and earnings per share of A$0.07) by about July 2028, up from A$-1.3 million today. The analysts are largely in agreement about this estimate.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 58.4x on those 2028 earnings, up from -2007.6x today. This future PE is greater than the current PE for the AU Aerospace & Defense industry at 31.7x.
- Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.08%, as per the Simply Wall St company report.
DroneShield Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- DroneShield's rapid scaling of its engineering and staff base-from approximately 90 to over 300 people within a short period-has led to a significant increase in fixed costs, while revenue growth has so far only marginally improved, resulting in a $1 million operating loss in 2024; if contract timing or pipeline conversion continues to lag, these elevated overhead costs could pressure net margins and delay sustained profitability.
- The majority (about 75%) of DroneShield's sales pipeline and current revenue base is tied to military and government customers, creating heavy dependence on defense and security budgets; any reduction, political shift, or procurement delays in key markets (such as U.S., Australia, or Europe) would expose the company to revenue and contract volatility.
- The evolving threat landscape-such as the rapid advancement of autonomous drone technology, new encrypted communications, or shifts toward non-RF-based drone threats-could quickly obsolesce DroneShield's current RF
- and sensor-based detection/mitigation technologies, requiring substantial and ongoing R&D investments, with the risk of product relevance declines and impacts on long-term revenue streams.
- Increased competition from better-capitalized global defense companies (like Anduril) and niche players in both military and emerging civilian markets threatens DroneShield's pricing power and could compress net margins, especially as larger contracts become more contested and as civilian anti-drone legislation advances and attracts new entrants.
- While there are increasing opportunities in the civilian sector, legislative and regulatory hurdles in key jurisdictions (such as the U.S. and Australia, where anti-drone solutions for law enforcement and critical infrastructure face lagging legal clarity) could slow market adoption, limiting addressable revenue growth and delaying diversification away from lumpy, defense-dependent contracts.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of A$2.9 for DroneShield based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$3.8, and the most bearish reporting a price target of just A$2.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$293.4 million, earnings will come to A$65.3 million, and it would be trading on a PE ratio of 58.4x, assuming you use a discount rate of 7.1%.
- Given the current share price of A$3.03, the analyst price target of A$2.9 is 4.5% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.