New Government Contract Sends DroneShield Shares Higher (ASX:DRO)

It’s a case of back-to-back wins for DroneShield Ltd [ASX:DRO].

Just a day after announcing an initial order with US Law Enforcement, the drone security company has inked another big deal. This time with an unspecified national government, though we do know that they’re part of the Five Eyes alliance.

Unspecified or not though, it doesn’t really matter for DroneShield.

All they’re focused on is making sales, and the past two days show that they’re making good ground on that front. As can be seen by the 6.25% rise in share price today.

Let’s talk finer details though…

Repeat customers is a positive step

See, while yesterday’s new order with US police was fantastic, today’s government deal is impressive for a different reason.

As DroneShield notes, it is a ‘new contract’ but one that has been placed with an ‘existing customer’. Meaning that the government has issued a follow-up order for a product that they have already purchased previously.

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This kind of repeat sale is precisely what will be needed to underscore DroneShield’s long-term success. Because while new sales and growth are important, converting current customers into repeat buyers is far more sustainable.

And as CEO Oleg Vornik notes, it is crucial for any business dealing in the defence industry:

This rapid sequence of increasing repeat orders is precisely the right position to be in our                industry, following initial lengthy periods of educating the end users on the merits of our offering   and undergoing military and Government procurement processes.

This is a testament to the world class performance of the DroneShield products, and                         strongly positions us as these end users are commence larger deployments of counter-UAS              systems.

So, with all that in mind, DroneShield is inching closer to its objectives. Steadily making a name for themselves, as well as increasing their top line sales.

All they need now is to reach that crucial breakeven point. A goal that has proved elusive to date.

In FY20 (to 31 December), DroneShield reported a $5.86 million net loss, despite a 58% increase in revenue to $5.55 million. Hopefully with this recent uptick in repeat orders, as well as the steady trickle of new customers, they will get closer by the end of FY21.

What’s next for the DroneShield share price?

For investors, today’s news is again a good development, but management certainly can’t rest easy.

DroneShield needs to turn these kinds of repeat deals into a far more common occurrence. A sales model that can begin to generate recurring revenues year-on-year.

At least, I expect that is the goal.

Again, that doesn’t mean they can afford to neglect their growth into new segments or with new customers either. But by combining the two — both repeat and new sales — then DroneShield should see far better results.

They’ve got a long road ahead of them, but this is certainly a unique stock with a fascinating business.

If, however, you’re looking for more explosive returns, well you might want to try elsewhere. Because while DroneShield is doing well, consistency seems to be their focus, rather than exponential growth.

Instead, you should check out our deep dive into the nuanced world of AI stocks. A sector that is stealthily gaining traction within the ASX. Not to mention, posting some incredible returns. Which is why we’ve put together a list of five of our favourites.

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Ryan Clarkson-Ledward,
For Money Morning

Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

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