DroneShield (ASX:DRO) Valuation in Focus After Ukrainian Defence Deal and S&P/ASX 200 Inclusion

If you’ve been tracking defence tech stocks lately, DroneShield (ASX:DRO) probably landed on your radar after a string of headline-grabbing moves. In just the past week, the company inked a new NDA with Critical Infrastructure Technologies for a project supporting the Ukrainian Ministry of Defence, aiming to embed its counter-drone systems in the Nexus 20 platform. What really has investors pausing is the dual milestone of DroneShield also joining both the S&P/ASX 200 Index and the S&P/ASX 200 Industrials Sector Index, signals that rarely go unnoticed by the broader market.

All the buzz around these deals is happening against a backdrop of powerful share price gains: DroneShield has returned over 2,000% in the past year, and nearly 22,000% across three years. That comes on top of recent wins, with momentum clearly building as large customers and index inclusions pull the stock into the spotlight. The last few months have marked some of the company’s strongest performance periods, hinting at transformed risk-reward math for investors.

With that kind of momentum, is DroneShield primed for even more growth, or is the market already ahead of itself in pricing future potential?

Most Popular Narrative: 3% Overvalued

The prevailing narrative suggests DroneShield is currently trading above its fair value. This outlook hinges on the company's ability to convert surging demand for counter-drone technology into meaningful, sustained earnings growth over the next several years, all while navigating competitive and regulatory headwinds.

Surging demand for counter-drone technologies is being driven by ongoing geopolitical instability and heightened security threats, as evidenced by record global and NATO-aligned defense spending and an escalating number of large procurement contracts in DroneShield's pipeline. This is positioning the company for robust, sustained revenue growth.

What exactly justifies such a high price tag for DroneShield? The magic recipe for this narrative is hidden in ambitious earnings projections and a remarkably aggressive profit multiple. Want to discover the bold financial leap that underpins this valuation? The numbers will surprise even seasoned market watchers. This narrative is fueled by estimates that could redefine what is possible for a defense tech upstart.

Result: Fair Value of $3.65 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, uncertainty around large government contracts and rising R&D costs could challenge DroneShield’s ambitious growth forecasts. This could prompt a market rethink if momentum falters.

Find out about the key risks to this DroneShield narrative.

Another View: Discounted Cash Flow Tells a Different Story

While analysts use future earnings to justify a high price, our SWS DCF model paints a much more cautious picture. DroneShield comes out undervalued by this more fundamental method. Does the market have it wrong, or does the DCF underestimate the company's momentum?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out DroneShield for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own DroneShield Narrative

If you want to dive deeper or draw your own conclusions, you can craft a personalized view and test alternative ideas in just minutes. Do it your way.

A great starting point for your DroneShield research is our analysis highlighting 1 key reward and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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