DroneShield (ASX: DRO) and Electro Optic Systems (ASX: EOS)

Hi Sidney,

Two defence stocks that have figured quit regularly over the last 12-months:

DroneShield (DRO) – we discussed DRO in detail before there 1H result here: this week they delivered strong absolute growth but fell well short of elevated market expectations, with revenue up 74% to $125.8m but ~19% below consensus, while EBITDA of $12.4m missed by ~50% and the company swung to a $32.2m net loss as investment in R&D, staff and manufacturing capacity ran ahead of revenue recognition.

• The miss drove an 11% sell-off on Wednesday, although cash receipts remained strong at $133.6m and management reaffirmed FY26 revenue guidance.

For MM, the result reinforces that DRO remains a high growth but highly volatile execution story. The order book and defence spending backdrop remain supportive, but the combination of lumpy contract timing, a rapidly expanding cost base, management credibility rebuilding under new CEO Angus Bean and short interest of ~15% means the market has little tolerance for disappointment.

• We remain neutral toward DRO, seeing a test of $1.50 likely into Christmas.

Electro Optic Systems (ASX: EOS) – delivered a standout 1H result, covered here, with revenue of $168.8m beating consensus by 29% and underlying EBITDA of $21.6m materially ahead of expectations, driven by the transformational contribution from MARSS. More importantly, EOS introduced FY26 revenue guidance of $360–400m backed entirely by secured contracts, while its order book has grown beyond $846m, providing unusually strong revenue visibility for a defence technology business.

• The market looked through the wider-than-expected net loss, largely reflecting acquisition and integration costs, with EOS rallying ~20% over the result week.

The MARSS acquisition is emerging as a major catalyst, adding high-margin counter-drone technology and significant Middle Eastern contracts, while partnerships with BAE Systems and KNDS provide further validation of EOS’s technology.

With more than $260m of cash, growing opportunities across counter-drone, laser and space defence, and no immediate production constraints, the growth outlook remains strong; however, after the sharp re-rating, execution and the current concentration of revenue in the Middle East remain key risks.

• EOS remains our preferred option of these two defence stocks but the risk/reward above $10 isn’t exciting, hence our neutral stance.

chart

DroneShield (DRO) versus Electro Optic Systems (EOS) – Indexed to Price: Source Bloomberg

LAST UPDATED 28/08/2026 12:34

Close

chart

DroneShield (DRO) versus Electro Optic Systems (EOS) – Indexed to Price: Source Bloomberg

LAST UPDATED 28/08/2026 12:34