If you are looking for outsized returns and have a higher than average risk tolerance, then it could be worth looking at the ASX stock in this article.

That’s because the team at Bell Potter believes it could deliver a return that is materially better than the market average.

Which ASX stock?

The stock that Bell Potter is recommending to clients is Electro Optic Systems Holdings Ltd (ASX: EOS).

It is an Australian defence manufacturer specialising in advanced weapon systems and satellite tracking technology.

Bell Potter notes that the company has secured its largest ever contract after entering into an agreement with the government of a Middle Eastern Gulf state. It commented:

EOS has entered into an agreement with the government of a Middle Eastern Gulf state (GCC member) for a nation-wide counterdrone (C-UAS) defence system valued at £370m (~$700m). This represents the largest contract ever secured by EOS. EOS is acting as prime contractor and systems integrator, deploying a cellular nation-wide system with MARSS’ AI-enabled NIDAR C2 platform at its core. The scope includes third-party sensors (electro-optical, radar, sonar) to feed data into central command centres, as well as initial third-party effectors (hard-kill kinetic interceptors and soft-kill jammers). 

EOS expects over 80% of contract revenue to be earned over the initial 12-24 months after the contract becomes unconditional. ~20% of total contract value relates to ongoing support over a 4-year period. Conditions include: Provision of a £37m performance bond, secured by a £40.3m cash security deposit (posted by EOS in August 2026); EOS providing a £74m bank guarantee, matched by an advance payment paid by the customer to EOS; and obtaining relevant export licences for system components within two months of receiving necessary documentation from customer.

In response to this news, Bell Potter has boosted its earnings per share estimates materially. It adds:

EPS changes: +0%/+946%/+94% over CY26/27/28e reflecting: the $700m contract; higher working capital in 1H27, higher tax rate. We have also incorporated scripbased earnout payments in CY27, totalling 19m in shares. We have unwound our inflated EV / EBITDA multiple following the contract award.

And while the deal is subject to a number of conditions, Bell Potter feels confident it will go ahead. It explains:

We are not discouraged by the export licence terms and believe it is likely EOS will proceed to implementation of the contract in early CY27e. Beyond financial benefits, this contract: (1) likely gives further battlefield experience to the NIDAR C2 solution, strengthening its competitive advantage; (2) establishes EOS as a specialist C-UAS prime contractor; and (3) enables upselling of EOS effectors.

Big potential returns

According to the note, Bell Potter has retained its buy rating on the ASX stock with an improved price target of $13.80 (from $12.60). 

Based on its current share price of $10.13, this implies potential upside of 36% for investors over the next 12 months.

Bell Potter concludes:

Given the security deposit posted in August 2026, we believe this contract award was somewhat priced in by the market, however, we are surprised by the market’s reaction and given upcoming catalysts, believe current levels represent an attractive entry point. Catalysts: >$300m Netherlands HELW production deal (Letter of Intent signed in September 2026); UAE HELW JV orders, >$500m additional MARSS orders, and a steady stream of Slinger product integration orders.

The post Why this rapidly growing ASX drone stock could rise 36% appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Which ASX drone company is up more than 15% on big contract news?
• Could Europe become the next big market for EOS?
• Here are the top 10 ASX 200 shares today
• Here are the top 10 ASX 200 shares today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended 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.

Life360 Inc. (ASX: 360) shares have been having a tough year.

Despite delivering strong growth across key metrics, the location technology company’s shares are down almost 40% since the start of the year.

While that is disappointing, Bell Potter thinks it could be a compelling buying opportunity for investors.

What is the broker saying?

Bell Potter highlights that EBITDA margin expectations are already low for the third quarter of FY 2026 due to increased marketing spend.

The good news is the broker believes Life360 will achieve what is expected and even sees scope for it to exceed expectations. It said:

Life360 has already set the bar relatively low for 3Q2026 by flagging an adjusted EBITDA margin of around 18% which compares to 20% in the pcp and also the previous quarter. The reason for the lower margin is flagged higher marketing spend during the quarter and also the lack of a tariff refund which was received in 2Q2026. 

The likely decrease in margin is, therefore, nothing untoward and looks to be reasonably well anticipated with a VA consensus forecast of c.19%. We ourselves forecast a margin of 18.3% in Q3 and expect our forecast to at least be met if not exceeded. We note that the company guided to a low double digit adjusted EBITDA margin in 1Q2026 – which was later clarified as being close to 10% – and then reported a margin of 12% so the company has some form in guiding to a certain level and then slightly exceeding it.

And while the broker doesn’t expect a guidance upgrade with the results, it believes there is potential for user growth to be on track to achieve guidance in FY 2026. It adds:

Given the anticipated slightly weak adjusted EBITDA margin in Q3 we do not expect any upgrade to the 2026 guidance when the quarterly is released on 10th November and this perhaps partly or largely explains the weakness in the share price since the release of the Q2 result in August. But in the absence of any upgrade there may still be some positives such as MAU growth >5m and/or paying circle growth around 200k in Q3 which would increase the likelihood that at least the low end of the 17-20% MAU growth guidance range can be achieved.

Time to buy Life360 shares?

According to the note, Bell Potter has retained its buy rating on Life360 shares with a trimmed price target of $32.00 (from $33.00).

Based on its current share price of $20.34, this implies potential upside of 57% for investors over the next 12 months.

Commenting on its recommendation, Bell Potter said:

We have reduced the multiple we apply in our EV/EBITDA valuation from 25x to 22.5x due to the continued weakness in software and app stocks both domestically and offshore. We have also increased the WACC we apply in the DCF from 9.5% to 9.7% due to an increase in the risk-free rate from 4.5% to 4.75%. 

The net result is a 6% decrease in our TP to $32.00 which is still a material premium to the share price so we maintain our BUY recommendation. The upcoming quarterly result next month may well prove to be some sort of catalyst, more so because expectations are already low rather than anticipating any sort of material beat or upgrade to guidance.

The post Down almost 40%, are Life360 shares a strong buy in October? appeared first on The Motley Fool Australia.

More reading

• 5 things to watch on the ASX 200 on Monday
• Here are the top 10 ASX 200 shares today
• Life360 vs Droneshield: Which ASX tech stock is a better buy?
• These 3 ASX shares have the ingredients of long-term compounders
• 3 ASX 200 shares I’d buy and hold for the next decade

Motley Fool contributor James Mickleboro has positions in Life360. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360. The Motley Fool Australia has positions in and has recommended Life360. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Once a week, I like to look at ASIC’s short position report to find out which ASX shares are being targeted by short sellers.

That’s because I believe it is worth keeping a close eye on short interest levels as high levels can sometimes be a sign that something isn’t quite right with a company.

With that in mind, listed below are the 10 most shorted shares on the ASX this week according to ASIC.

The top 10 most shorted ASX shares

• DroneShield Ltd (ASX: DRO) remains the most shorted ASX share despite its short interest easing from 15.2% to 14.5%. Short sellers may still be concerned about the ASIC investigation into the counter-drone technology company’s previous market disclosures and share trading.
• Lotus Resources Ltd (ASX: LOT) has seen its short interest climb from 13.3% to 14%. The uranium producer is working towards steady-state production at Kayelekera, but short sellers may be questioning how quickly it can achieve its targets and at what cost.
• Boss Energy Ltd (ASX: BOE) has short interest of 13.1%, which is largely unchanged week on week. Boss recently revised its long-term development plan for Honeymoon, and short sellers may be sceptical about the production and cost assumptions underpinning its outlook.
• PLS Group Ltd (ASX: PLS) has moved higher up the table, with 12.8% of its shares held short. Despite improving lithium market conditions, short sellers could be betting that the recovery in prices will be difficult to sustain.
• Zip Co Ltd (ASX: ZIP) has seen its short interest ease slightly to 12.6%. Short sellers may still be concerned that elevated interest rates could put pressure on the buy now pay later company’s customers and funding costs, potentially weighing on growth and profitability.
• IperionX Ltd (ASX: IPX) has short interest of 12.5%, down from 12.8%. The titanium producer continues to make technological progress, but short sellers may believe commercial-scale production and the earnings needed to justify its valuation remain some way off.
• Domino’s Pizza Enterprises Ltd (ASX: DMP) has 11.7% of its shares held short, down slightly week on week. Although its restructuring has improved franchisee profitability and cash flow, short sellers appear to doubt whether sales can recover quickly enough to support a sustained earnings turnaround.
• Lynas Rare Earths Ltd (ASX: LYC) has returned to the top ten with short interest of 11.5%. This could reflect concerns over the cost and execution risks associated with its proposed acquisition of Meteoric Resources and the development of its Caldeira rare earths project in Brazil.
• Paladin Energy Ltd (ASX: PDN) has seen its short interest increase from 11% to 11.5%. With the production ramp-up at Langer Heinrich completed, short sellers may now be focusing on uranium price expectations and the costs associated with its future growth projects.
• 4DMedical Ltd (ASX: 4DX) has slipped to tenth place after its short interest fell from 11.9% to 11.1%. Despite increasing commercial adoption of its lung imaging technology, short sellers may believe its valuation is difficult to justify given its relatively modest revenue base.

The post These are the 10 most shorted ASX shares appeared first on The Motley Fool Australia.

More reading

• Buy, hold, sell: BHP, Westpac, and Zip shares
• PLS Group vs Zip: Which ASX share could be a 10-bagger?
• Could the DroneShield share price reach $2 in 2027?
• 9 ASX 200 shares upgraded by brokers this week
• 6 ASX shares to buy in today’s weak market: experts

Motley Fool contributor James Mickleboro has positions in Domino’s Pizza Enterprises. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Domino’s Pizza Enterprises and DroneShield. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has recommended Lynas Rare Earths Ltd. The Motley Fool Australia has recommended Domino’s Pizza Enterprises. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.