DroneShield's Record Revenue Can't Silence the Short Sellers

DroneShield posts record H1 revenue and strong backlog, but short interest hits 15.7% amid ASIC probe and margin concerns.

There is a peculiar disconnect at the heart of DroneShield's current market narrative. The counter-drone specialist just posted its best-ever half-year revenue, guided to a full-year sales range that its order book already covers by as much as 96 percent, and yet roughly one in every seven freely traded shares is being bet against. It is a standoff between operational momentum and governance anxiety — and neither side is blinking.

The stock, which changes hands at around EUR 1.04, now trades roughly 42 percent below its 200-day moving average of EUR 1.81. That gap alone tells the story of a market that has spent much of the past year marking down the company's equity despite a steady drumbeat of contract wins.

A Split Screen on the Sell Side

Nowhere is the disagreement more visible than in the analyst community, where price targets range from AUD 1.45 to AUD 2.60 — a chasm that reflects fundamentally different views on whether margin erosion or growth potential will win out.

Bell Potter reaffirmed its buy rating on August 28 while trimming its target from AUD 2.50 to AUD 2.40. The brokerage points to the new RfAI-3 and RfRecon product lines as potential catalysts for European contract awards and believes the upper end of the fiscal 2026 revenue guidance remains within reach. Canaccord Genuity sits at the most bullish end of the spectrum with a AUD 2.60 target, comfortably above consensus.

The bears, meanwhile, are anchored by Jefferies at AUD 1.45 and Ord Minnett at AUD 1.50 — levels that underscore concerns about deteriorating margins and the company's swing into losses.

The Regulatory Overhang

Compounding the valuation debate is an unresolved investigation by the Australian Securities and Investments Commission. The regulator opened its probe in May 2026 following governance concerns tied to insider sales by the former chief executive and other directors in November 2025. With no resolution in sight, the inquiry continues to weigh on institutional confidence independent of the company's operational performance.

DroneShield has moved to shore up its boardroom in response. Hamish McLennan was appointed chairman-elect at the start of the year, and Rear Admiral Lee Goddard — a 30-year veteran of defense and national security — joined as an independent director in July. These appointments are widely read as an effort to steady the ship while the ASIC matter runs its course.

Short Sellers Are Piling In

The skepticism is quantifiable. Short interest stood at 15.7 percent of free float before the half-year results were published — reportedly the highest level of any stock on the Australian exchange. The figure has since been cited at 15.5 percent, either way an extraordinary concentration of bearish positioning that signals a meaningful chunk of the market is weighting operational risk more heavily than the long-term growth story.

The Numbers Tell a Two-Sided Story

The half-year report released this week does little to resolve the tension. Revenue surged 74 percent to a record AUD 125.8 million, with recurring revenue up 229 percent to AUD 11.5 million — now representing 9.2 percent of total sales. The company says 4,100 software-enabled devices are now deployed globally.

But profitability went in the opposite direction. The company swung to a net loss of AUD 32.2 million from a profit of AUD 2.1 million in the prior-year period, while EBITDA fell to negative AUD 12.4 million. Gross margin slipped from 68 percent to 65 percent, a decline management attributes to product mix and a one-off inventory writedown, with expectations of a recovery to the mid-60s in the second half.

Contracts Keep Coming

The order pipeline, at least, remains robust. In late July, DroneShield secured a AUD 23.2 million order from a European military customer via COBBS BELUX BV. That followed a June agreement with the US Department of Defense's Joint Interagency Task Force 401 worth up to AUD 24.9 million — AUD 19.3 million as an initial value with AUD 5.6 million in potential extension options over five years.

These wins feed into a backlog that management says already covers AUD 240 million of the AUD 250–270 million revenue range guided for fiscal 2026 — between 89 and 96 percent of the target. The guidance was reaffirmed alongside the half-year numbers.

A European Wildcard

Beyond the near-term order book sits a potentially transformative opportunity. DroneShield is part of a consortium with Anduril, COBS and Nokia bidding for a European defense program under the RE-ARM 2030 initiative. A decision on vendor selection is expected in the second half of 2026. Success would open a significant channel into European defense budgets — though the outcome remains very much uncertain.

The company is also anticipating first sales of its RF-Recon technology in H2 2026, a new product category designed to complement its drone-defense portfolio. Commercial validation for that offering is still pending.

Cash Provides a Cushion

One mitigating factor: the balance sheet. DroneShield holds AUD 180 million in cash and term deposits with zero debt. That liquidity buffer should comfortably fund continued investment in RF-Recon and the European consortium bid while the market waits for the revenue growth to translate into sustainable profits.

For now, the central question for investors is whether DroneShield can stabilize profitability and bring the ASIC probe to a definitive conclusion in the coming months. Until then, the gap between the most optimistic and most pessimistic analyst targets — and the unusually heavy short positioning — looks set to persist.