DroneShield shares: How much profit would justify a $2 valuation?

DroneShield Ltd (ASX: DRO) shares have experienced a change in fortunes over the past year.

After attracting enormous enthusiasm from investors, the counter-drone technology company's shares have fallen sharply as questions surrounding its valuation and profitability have grown.

With DroneShield shares trading around $1.47 on Wednesday, a return to $2 would represent an increase of approximately 36%.

But what would the company actually need to earn to justify that valuation? Let's take a closer look.

What would a $2 share price mean?

DroneShield currently has approximately 924 million shares on issue. At $2 per share, that would give the company a market capitalisation of around $1.85 billion.

That's a substantial valuation for a business still working towards sustainable profitability.

To determine whether it could be justified, we need to consider how much DroneShield might earn as its operations expand.

For example, if investors were prepared to value the company at 30 times annual earnings, DroneShield would need to generate approximately $62 million in net profit.

At a more conservative price-to-earnings (P/E) ratio of 20 times, that figure increases to around $92 million.

Both scenarios assume DroneShield becomes profitable and can sustain those earnings. So, how realistic are those figures?

Could DroneShield generate those profits?

I think there are good reasons to be optimistic about the company's growth prospects. DroneShield operates in an industry experiencing considerable demand as governments and military organisations invest in protecting themselves against drones.

The growing use of drones in modern warfare has demonstrated the importance of effective detection and countermeasure systems.

And DroneShield is already benefiting from this demand. During the first half of 2026, revenue increased 74% to $125.8 million.

Management is now targeting full-year revenue of between $250 million and $270 million.

There is considerable potential for further expansion as defence organisations increase spending on counter-drone technology.

For example, DroneShield recently secured access to a US government procurement arrangement with a maximum value of US$500 million.

This doesn't guarantee orders, but it could provide another avenue for securing substantial contracts.

I'm also encouraged by the company's growing software and subscription business. Recurring revenue increased 229% to $11.5 million during the first half.

Although this remains a relatively small part of the business, I think it could become increasingly important as DroneShield expands its installed customer base.

A larger contribution from software and subscriptions could provide more predictable revenue between major equipment orders and support profitability over time.

Turning revenue into profits

Of course, growing sales is only part of the challenge. DroneShield reported a statutory net loss of $32.2 million during the first half of 2026, reflecting the significant costs associated with expanding its operations.

I think there's an opportunity for profitability to improve as revenue grows and the company benefits from its investments in technology and manufacturing capacity.

And with software and subscriptions potentially becoming a larger contributor, the business could gradually become less dependent on winning major new contracts to support earnings.

To illustrate what might be possible, imagine DroneShield eventually generates $500 million in annual revenue.

At a net profit margin of 12.4%, that would produce approximately $62 million in earnings. That's enough to support a $2 share price at a P/E ratio of 30 times. 

This is an illustrative scenario rather than a forecast, and achieving that level of profitability would require a substantial improvement from today's position.

But I think it demonstrates how DroneShield could eventually grow into a much higher valuation if management can successfully scale the business.

Foolish takeaway

I think a $2 valuation for DroneShield is achievable over time, and I would be comfortable buying shares at current levels.

The company has demonstrated impressive revenue growth, and I believe its market opportunity could support considerably more expansion.

But justifying a higher share price will ultimately depend on how much of that growth reaches the bottom line.

If DroneShield can continue winning contracts, improve its profit margins, and build a more consistent earnings base, I think investors could have good reason to value the business at $2 or more.

The post DroneShield shares: How much profit would justify a $2 valuation? appeared first on The Motley Fool Australia.

Motley Fool contributor Grace Alvino has positions in DroneShield. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield. 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.

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