Shares in ASX-listed tech scaleup DroneShield have plunged for a...

Shares in ASX-listed tech scaleup DroneShield have plunged for a second day in a row, falling another 20% to $1.61 by Wednesday lunchtime, following a 22% plummet on Tuesday amid a halt in trade.

DroneShield (ASX: DRO) shares have been on tear over the last seven months, climbing from $0.31 cents in mid-December 2023, to a high of $2.72 before going over the cliff and losing up to 30% on Tuesday. More than $800 million has been wiped from the company’s value as quickly as it got there.

It’s been a meteoric rise for the Sydney-headquartered US tech company, which listed on the ASX in 2016 at $0.20 cents a share, raising $7 million for a market capitalisation $27m. Over the past eight years, its share prices has bounce along around or below 40 cents a share.

In late January DroneShield shares cracked the 50 cent barrier, by April they’d doubled to $1 and then climbed steeply through May and June before hitting $2 in July. And kept climbing, having posted a 646% gain in FY24.

A director sold $700,000 worth of stock when it was under $1 in the first quarter of 2024 and in April, the company raised another $100 million at $0.80 cents a share.

“Even management were selling down prior to the $100m raise they did at 80c,” Fergie said. “[This] valuation is ridiculous for the revenue they’re expecting.”

Yesterday, the business was suddenly worth $2 billion. The company was popular with retail investors, and then short sellers too.

DroneShield’s share price over the past week

DroneShield makes drone countermeasures, described as “electronic warfare solutions”. Some are made to look like guns you point at autonomous aircraft to bring them down. Their clients are governments, especially military, law enforcement and other critical infrastructure organisations.

The business has an enthusiastic PR strategy when it comes to getting the word out on sales wins, but for the most part, for a tech company now in unicorn territory, they’re modest – $4.7 million from a “Swiss international customer” with a “high-profile government agency” as the end customer in June; a “repeat US Government order of $5.7 million” in May.

Nonetheless, DroneShield posted its first profit in 2023 – $9.3 million, after tax, on the back of revenue growing 226% to $55.1 million.

During April’s raise the company said it had a sales pipeline worth more than $500 million “with over 90 qualified projects at different stages with high quality government customers” alongside $27 million in contracted sales orders currently being fulfilled. It’s also riding the AI wave developing in-house artificial intelligence and
machine learning engines and capabilities, and there’s a NATO agreement in the wings.

Yesterday’s wild ride led the ASX to issue a please explain notice DroneShield as the shares went into a trading halt having fallen from $2.72 to $1.79 on Tuesday.

The company responded that it didn’t know anything it hadn’t disclosed to the market, but pointed to coverage by Capital Brief, which has been charting DroneShield’s astonishing rise in 2024, andpublished a new story yesterday, featuring Sublime Funds Management director Rodney Forrest saying he’d shorted the stock, adding“Its valuation is wild”. The story was the likely driver of the plunge in its share price, the company told the ASX.

As the article pointed out, the company was trading at 426 times EBITDA pre-tax and a 21 times forward sales multiple.

For most companies, the norm is 5-7.

As the story of Icarus reminds us, heed you’re father’s warnings, lest you fly too high.

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