You might recall I bought Droneshield in November 2023 for 31 cents. Since then, I’ve held through two drawdowns of +70% and a couple of casual 50% air pockets. The chart above tells the story better than I can, straight lines up, vertical cliffs down, a defence-themed emotional bootcamp.
And yet… I’m still holding on.
DRO reports on a Jan-Dec calendar so has just published its annual report. If strip out the share price trauma and the senior management share sales, FY25 was objectively massive. Revenue landed around the $260m mark, roughly 4x the prior year. Underlying PBT came in at ~$33m. Statutory NPAT was a much more modest ~$3.5m. Operating cash flow was positive at ~$15.9m. Gross margins hovered around the mid-60s. Cash on hand sits a little north of $200m. The pipeline stands at roughly $2.3bn across close to 300 deals.The revenue mix is increasingly RfPatrol, DroneSentry systems and crucially SaaS layered on top. Good luck to the AI SaaSpocalypse replacing software in a DroneSentry.
This is no longer a speculative gadget company. It’s a scaled counter-drone supplier with global reach. The number everyone is really watching: the ~$750m deal sitting in the pipeline. It’s with an existing European customer that placed a ~$62m order in FY25. So, this isn’t a cold lead, it’s an existing relationship where Management say they were happy with the previous order. If that lands, it’s 3x FY25 revenue in a single contract! It would validate scale and demonstrate manufacturing depth which Oleg said they could deliver in batches over a 9-month period or over a few years if the customer staggers the order.
Oleg also mentioned this morning that while military demand has exploded, he expects the civilian use case and civil pipeline to eventually overtake the military side. Airports, Data Centres, critical infrastructure, police forces. The thesis is that counter-drone capability becomes standard kit, not specialist equipment. If that happens, the earnings profile changes again.
However, if I take off my 12 bagger rose tinted glasses, at current prices, the market isn’t pricing nice progress. It’s pricing almost perfect execution. A rough reverse DCF view suggests we need revenue pushing toward $1bn within 4–6 years, gross margins holding around 60%+, net margins expanding into the teens, and continued international contract wins to justify the valuation. Miss that glide path and the stock doesn’t gently drift down, it reprices violently…… as we have seen!!
On the weekend’s MF Pod, Scott summed up great businesses as those that sell more things, to more people, more often. That’s the filter I’m applying here. Is DroneShield expanding its customer base? Deepening relationships? Turning one-off hardware sales into platforms with recurring layers? So far, the trajectory suggests yes. But defence procurement is lumpy, and expectations are now high.
I mentioned to Andrew in my interview that I was one day away from selling towards the top of the peak last October when the book Rule Breaker Investing was published, which convinced me to let this winner run… hard!
For now, I’m leaning into my patient, perhaps lazy, investor vibe. Not because I think the risks aren’t there. But because the TAM is real, the technology stack appears differentiated, the repeat orders are increasing, and the optionality embedded in that pipeline is meaningful.
If they execute, this could still be early.
If they stumble, we’ll likely get another lesson in gravity.
I’m simultaneously up ~12x since my entry and down ~(44)% since buying David Gardner’s book.
Cheers
JM+Chatty+Claude (Claude does way better graphs than Chatty).