Elsight Ltd (ASX: ELS) $4.41

Elsight is a $980mn company which provides secure communications technology for drones and other unmanned systems, with its Halo platform combining cellular, satellite and radio networks to maintain connectivity in challenging environments. The company is gaining traction in the defence and autonomous-drone markets, making it a picks-and-shovels exposure to the rapid global expansion of unmanned defence systems. However, similar the better known DroneShield (-30%) its endured a tough 3-months (-45%) after embracing the increased threats of war across the globe.

Like a number of companies in the drone space its early days for this almost billion dollar business with revenue of less than $23mn in FY25 (they are a Dec year end) – ELS has basically halved from its June high, with the decline appearing to be a case of valuation mean reversion after an extraordinary re-rating rather than any obvious deterioration in the business. Revenue has surged from $4.8mn to $23.4mn in 1H26, but much of the step-change reflected a single large Halo order that has now been delivered. With the stock having traded above 100x earnings near its peak, even continued good news was no longer enough to sustain the valuation.

• ELS needs to receive meaningful orders from more than just one customer to maintain its current lofty valuation.

Concerningly, ongoing positive catalysts have repeatedly failed to stem the recent decline: Bell Potter upgraded its price target following the 2Q result, ELS gained entry to the ASX 200 in September, Halo was listed on the US Army’s UAS marketplace and Vanguard emerged as a substantial shareholder. Broader selling across growth and technology stocks as bond yields climbed has added pressure, but ELS’s underperformance has been noticeably more severe. The fundamental growth story remains intact, but after such an extraordinary run, ELS needs to demonstrate that new customers and contracts can replace the large orders that drove its initial growth surge, until then, we see no reason to buy ELS.

• We wrote about ELS in the MM Blog on Tuesday, here, when it was down ~12% on no apparent reason- we were bearish then, and the stock has since dropped another ~5%.