If you think drones are the future of defence, these three ASX stocks might be for you

The war in Ukraine has thrown into sharp relief how important drone warfare, and anti-drone technology, will be on the battlefield of the future.

For investors looking to gain exposure to this sector, in an environment where defence spending is increasing both at home and abroad, there are three main companies to have a look at.

DroneShield Ltd (ASX: DRO)

The best known stock in the sector listed on the ASX is unarguably DroneShield, which is heavily traded and a favourite among share market speculators.

The company’s shares have had a wild ride over the past year, increasing from lows of 58.5 cents to as much as $6.70 before crashing back below the $3 level in recent months.

The shares have made a recovery in December after investor confidence was shaken by major share sales among its executives, as well as the company’s gaffe in announcing a contract to the ASX which had already been announced.

Bell Potter Securities’ Christopher Watt, quoted in The Bull recently, said he had a hold recommendation on the stock, saying it had short-term headwinds, while its fundamentals were “sound”.

Elsight Ltd (ASX: ELS)

Elsight is a key supplier of communication modules to drone manufacturers.

The company in mid-December announced that it had won contracts worth more than US$20 million, for delivery across January to April next year, “reflecting strong beginning and forward demand for the Halo platform across multiple defence and uncrewed programs”.

The company’s Halo platform is a communications technology for “beyond visual line of sight” drone operations, according to the Elsight website.

As the company says:

Elsight’s Halo beyond visual line of sight communication module ensures uncrewed aerial and ground systems (UAVs/UGVs) remain securely connected to their command centres, across any terrain, spectrum disruptions, or network limitations. Powered by proprietary multilink bonding technology, Halo seamlessly aggregates cellular, SATCOM, and other RF networks into a virtual pipeline with built-in redundancy, enabling continuous transmission of video, telemetry, and control data. Proven across hundreds of thousands of operational hours in the most demanding environments, Halo delivers the connection confidence that military, commercial, and public safety operators demand.

Elsight shares are up more than 10-fold over the year to $3.17, which might mean it’s time for caution, with Bell Potter’s most recent price target for the shares well below that at $2.

Electro Optic Systems Ltd (ASX: EOS)

Electro Optic Systems has also had some recent contract wins, announcing in mid-December a new international contract worth $32 million for its R400 Remote Weapon System.

This built on a $125 million contract win in August for a high energy laser weapon and another R400 order worth $108 million in October.

Bell Potter said in a note to clients that, “we see upgrade potential to our revenue estimates, driven by increasing global capital allocation toward counter drone capabilities”.

Bell Potter has a price target of $8.10 on EOS shares compared with $8.82 currently.

The post If you think drones are the future of defence, these three ASX stocks might be for you appeared first on The Motley Fool Australia.

More reading

• Why Boss Energy, DroneShield, EOS, and Netwealth shares are falling today
• Why Clarity, DroneShield, St Barbara, and Treasury Wine shares are charging higher today
• Why are DroneShield shares racing higher again today?
• DroneShield secures $6.2 million Asia Pacific contract
• Up 106% in December, this stock has one of the biggest Santa Claus rallies on the ASX

Motley Fool contributor Cameron England has positions in Electro Optic Systems. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield and Electro Optic Systems. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.