DRONESHIELD IN TURBULENCE – CLEAR RUNWAY FOR VOLATUS AEROSPACE AND RED CAT HOLDINGS

DroneShield: Strong Growth, Weak Reaction

When DroneShield reported its half-year results on Tuesday, the Australian drone defence specialist's stock lost about 10% despite a significant jump in revenue. On Wednesday, the stock fell another 5%. At first glance, however, there was not much to criticize. Half-year revenue climbed to AUD 125.8 million, a 74% increase compared to the same period last year. In addition, the company announced a new AUD 23.2 million order for vehicle-mounted defence systems from a European military customer and developed RfAI-3, a new generation of radio frequency identification technology designed to detect even previously unknown drone signals. Nevertheless, the market reaction was negative. The reason lies less in the figures themselves than in a question that has been weighing on the share price for weeks: can the growing order volume be converted into profit while maintaining stable margins? The gross margin fell from 65% to around 60% in the first half of the year, weighed down, among other things, by a higher proportion of purchased third-party hardware and the move to a new production facility.

The business model is based on non-kinetic drone defence—that is, neutralizing enemy aircraft without firing upon them by disrupting their communication and navigation links. The company plans to increasingly shift the model toward recurring software revenue (Software as a Service, or SaaS for short). This works similarly to antivirus software: customers pay on an ongoing basis for updates that protect against new threats. CEO Angus Bean, who has led the company since April of this year, viewed the secured order volume of AUD 206 million for 2026 as confirmation of the company's strategy and market demand. Nevertheless, short sellers betting on falling share prices have recently taken significant positions, which initially seems paradoxical. This is because, despite the declining margin, the Sydney-based company actually stands out positively from the rest of the industry. The company is already in the black. For the full year 2025, the bottom line showed a net profit of AUD 3.5 million—following a loss the previous year. Among young drone companies, this is the exception, not the rule.

So why the negative sentiment among investors? Two explanations stand out at the industry level. First, the production gap. While the US Department of Defence is pushing ahead with programs for autonomous systems, pure-play drone manufacturers often cannot bring the required quantities into mass production quickly enough. Second, valuations. Following the geopolitical conflicts of 2024 and 2025, drone stocks had simply become overheated. In the case of DroneShield, a closer look reveals two additional headwinds—an ongoing investigation by the Australian Securities and Investments Commission (ASIC) into stock sales by executives in November 2025, as well as two price target cuts by the investment bank Jefferies within a few weeks, bringing the latest target to AUD 2.05. That is not much higher than the current price of AUD 1.81 (EUR 1.10).

Volatus Aerospace: From Flight Operations to Intelligent Control

Among others, the Canadian company Volatus Aerospace was caught in the crossfire. Since its annual high in March at CAD 0.89, the share price has plummeted to a recent low of CAD 0.46 or EUR 0.29. The next quarterly report is not expected until late August, so there is no immediate earnings catalyst here. Instead, two strategic announcements shaped the picture. At the Farnborough International Airshow in the UK, Volatus presented itself as part of the "Team Canada" delegation with new autonomy and reconnaissance solutions. And a memorandum of understanding was signed with Concordia University's Volt-Age research program in Montréal to develop energy technologies for unmanned aerial systems and bring them to market more quickly—a key step toward strengthening domestic supply chains and reducing dependence on foreign suppliers.

Volatus originally operated flight services—approximately 28 manned aircraft and over 100 drones cover about 1.7 million km annually conducting pipeline inspections. To this day, this commercial foundation generates recurring annual revenue of approximately CAD 20 million, but more importantly, it provides a continuous stream of data for the further development of the company's own technology. However, the focus of the business model is now shifting from hardware and surveillance flights toward intelligent control. At its core is the SKYDRA™ software, a SaaS subscription model for planning drone defence operations, which already achieved a 35% margin in the first quarter of 2026. It is complemented by the autonomy platform centred on the V-Cortex™ flight controller—a box measuring 3.5 x 3.5 cm and weighing less than 15 g that uses AI to enable navigation even without a satellite signal. Added to this is a system for beyond visual line of sight (BVLOS) flights. CEO Glen Lynch is convinced that Canada has the scientific and industrial foundation to "play a leading role" in next-generation unmanned systems.

At the same time, the defence business is growing. The production facility in Mirabel, located in southern Québec and opened in June, is designed to generate annual revenue of up to CAD 250 million. This is complemented by NATO contracts, participation in the US Drone Dominance Program, and a CAD 34.5 million capital increase completed in June, which expands the company's capacity to bid on larger contracts. Analysts see significant potential. Both Canaccord Genuity and Stifel have set a price target of CAD 1.00 for the stock. Based on the current share price, this represents more than a doubling.

Red Cat Holdings: Class-Action Lawsuit Prevents Takeoff

A third fallen high-flyer in the industry is Red Cat Holdings from the US, a provider of drone and robotics solutions for defence and national security. Through its subsidiaries Teal Drones and FlightWave, the company produces both hardware and software "made in America" that complies with the strict requirements of the US National Defense Authorization Act (NDAA)—a key selling point for customers who rely on secure domestic supply chains. The flagship product is the Black Widow, a compact reconnaissance drone designed for intelligence gathering, surveillance, and reconnaissance in tactical operations. It emerged from the US Army's short-range reconnaissance program and was tested during the conflict in Ukraine. It is at the center of an entire "Family of Systems," which now also includes the maritime division Blue Ops with the unmanned surface vehicle Variant 7, as well as the new Hellcat variant designed for international customers.

This demand is reflected in a series of orders. Teal Drones was also selected for the Pentagon's Drone Dominance Program, which could reach a total value of up to USD 1 billion over four phases; the first tranche alone comprises 30,000 drones. In addition, there are orders from NATO and Asia-Pacific allies. This is already reflected in the figures. In the first quarter of 2026, revenue rose by 849% to USD 15.5 million, and the gross margin turned from significantly negative to +12.7%. For the full year, management is targeting revenue of USD 150 million to USD 180 million and a gross margin of 30%. CEO Jeff Thompson sums up the market logic: allies need systems that are "ready for deployment today" and can be manufactured on a large scale. So far, so good. However, a class-action lawsuit filed by shareholders and the recent departure of Chief Sales Officer Geoffrey Hitchcock are causing unease. This contrasts with analysts' price targets ranging from USD 20.50 to USD 21.40. Given that the share price has fallen to USD 7.43 (EUR 6.45), the median price target is nearly three times the current price.

Conclusion: Short-Term Weakness, Long-Term Opportunities

Drones and drone defence are no longer a niche market but have become crucial to modern warfare—from Ukraine to the Middle East. It is precisely this strategic importance that explains the industry's occasionally high valuations. Despite the price declines, DroneShield and Red Cat are already valued at the equivalent of over EUR 1 billion, while Volatus, at around EUR 210 million, is still aiming to reach that level. But this is precisely where the greater leverage lies if the shift toward defence and AI-supported control pays off. The current weakness of the entire sector stems from a trigger that truly affects only one of the three stocks: DroneShield's margin pressure and the ASIC investigation. Volatus and Red Cat are being penalized by association, even though their order books remain intact and analysts' price targets for both companies are well above current levels. For long-term investors, the ongoing correction could therefore be an ideal buying opportunity.