Should I invest $1,000 into DroneShield shares?

DroneShield Ltd (ASX: DRO) has become one of the ASX’s most closely watched defence technology companies.

Demand for counter-drone systems is growing, while the company continues to make progress with major customers in markets such as the United States.

So, if I had $1,000 available for a higher-growth investment, would DroneShield make the cut?

A growing defence opportunity

Drones are playing an increasingly important role in modern warfare and security, creating demand for technology capable of detecting, tracking, and defeating them.

DroneShield has developed products across portable counter-drone systems, vehicle-mounted technology, sensors, electronic countermeasures, and command-and-control software.

That gives the company several ways to participate as governments and defence organisations increase spending in this area.

And importantly, DroneShield is starting to turn that opportunity into meaningful customer relationships.

Progress in the United States

One recent example came at the end of September. DroneShield secured an Indefinite Delivery, Indefinite Quantity contract supporting the US Joint Interagency Task Force 401 Domestic Shield initiative.

The procurement vehicle has a maximum value of US$500 million over three years and provides a streamlined way for US authorities to purchase DroneShield technology.

That does not mean US$500 million of revenue is guaranteed. Individual orders still need to be placed under the agreement.

Even so, I think it strengthens DroneShield’s position in a market that could become increasingly important to the business.

The company had already installed DroneSentry-X systems on US military vehicles under the same program, showing that its technology is moving beyond trials and into operational use.

Building more than a hardware business

There is another part of the story I think could become increasingly important.

DroneShield has launched Mission Ready Services, an annual renewable offering covering areas such as software updates, training, and support.

With thousands of software-enabled devices already deployed, that creates an opportunity to generate additional revenue after the initial hardware sale.

Over time, a larger contribution from software and services could make the business less dependent on the timing of individual equipment orders.

That would be an important development as DroneShield grows.

What are the risks?

There is still plenty that could go wrong.

Defence contracts can be large but irregular, and procurement programs do not guarantee that orders will arrive when investors expect.

DroneShield is also expanding rapidly, which means it needs to keep investing in manufacturing capacity, research and development, and its international operations while maintaining execution.

The share price could therefore remain volatile, particularly if contract announcements slow or market expectations run ahead of what the business delivers.

That is the sort of risk I would want to be comfortable with before investing.

Foolish takeaway

I would be prepared to invest $1,000 in DroneShield shares.

The company is addressing a defence problem that appears to be becoming more urgent, while its progress in the US suggests its technology is gaining credibility with major customers.

There will almost certainly be sharp swings along the way. But for a long-term investor comfortable with higher risk, I think DroneShield has a genuine opportunity to become a much larger defence technology business.

The post Should I invest $1,000 into DroneShield shares? appeared first on The Motley Fool Australia.

More reading

• These are the 10 most shorted ASX shares
• Droneshield vs Zip Co: Which tech share is the better ASX growth pick?
• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares today
• Should I buy DroneShield shares after its big US news?

Motley Fool contributor Grace Alvino has positions in DroneShield. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. 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.