DroneShield Limited's (ASX:DRO) Share Price Is Still Matching Investor Opinion Despite 56% Slump

DroneShield Limited (ASX:DRO) shareholders won't be pleased to see that the share price has had a very rough month, dropping 56% and undoing the prior period's positive performance. The good news is that in the last year, the stock has shone bright like a diamond, gaining 161%.

Although its price has dipped substantially, DroneShield may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 16.7x, since almost half of all companies in the Aerospace & Defense industry in Australia have P/S ratios under 3.7x and even P/S lower than 1.5x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for DroneShield

What Does DroneShield's Recent Performance Look Like?

DroneShield certainly has been doing a good job lately as it's been growing revenue more than most other companies. The P/S is probably high because investors think this strong revenue performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on analyst estimates for the company? Then our free report on DroneShield will help you uncover what's on the horizon.

How Is DroneShield's Revenue Growth Trending?

DroneShield's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 62%. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the two analysts covering the company suggest revenue should grow by 139% over the next year. Meanwhile, the rest of the industry is forecast to only expand by 16%, which is noticeably less attractive.

With this in mind, it's not hard to understand why DroneShield's P/S is high relative to its industry peers. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

DroneShield's shares may have suffered, but its P/S remains high. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into DroneShield shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for DroneShield you should be aware of, and 1 of them is potentially serious.

If these risks are making you reconsider your opinion on DroneShield, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.