Forget Droneshield shares, I'd buy this ASX defence stock instead

Droneshield Ltd (ASX: DRO) shares closed 7.83% lower on Thursday afternoon, at $2.00 a piece. That means the stock has crashed nearly 70% since hitting an all-time peak in early October. The shares are now 166.67% higher for the year-to-date.

Recently, Droneshield shares have been under considerable pressure. From its US CEO resignation to employee share sell-offs and even an accidental ASX release, Droneshield shares have attracted a lot of not-so-positive attention. 

Sure, the 166.67% annual gain is still impressive, but I have my eye on another AI-centred defence stock which I'd buy instead.

Another ASX defence stock tipped to boom

Electro Optic Systems Holdings Ltd (ASX: EOS) is an Australian company that develops and produces advanced electro-optic technologies. The company's products are used in space information and intelligence services, as well as in optical, microwave, and on-the-move satellite products, optical sensor units, and remote weapons systems for land, sea, and air applications.

The group's reportable segments are communication, defence, and space, but the company generates the highest portion of its revenue from its defence business. Like Droneshield, Electro Optic's defence segment is involved in developing, manufacturing, and marketing advanced fire control, surveillance, and weapon systems to approved military customers. 

I believe any investor seeking exposure to the rapidly expanding market should consider Electro Optic shares as an alternative to Droneshield. As ongoing geopolitical uncertainty continues to put pressure on countries worldwide, and governments step up their spending on defence systems, Electro Optic Systems is well-positioned to snap up a good portion of the demand.

Is there any upside ahead for the defence stock?

Tradingview data shows that out of three analysts with a rating on the shares, all of them consider Electro Optic Systems a strong buy. The maximum target price for the shares is as high as $11.18 per share. This implies a potential upside as high as 149.55% over the next 12 months, at the time of writing. 

Bell Potter is slightly more conservative, with a buy rating and a $8.10 price target on Electro Optic shares. The broker stated that a potential peace deal between Ukraine and Russia could impact its share price in the near term. But it doesn't feel a deal will affect its growth forecasts. As a result, it is urging investors to pick up Electro Optic Systems shares now. The Bell Potter team also noted that the company recently completed the acquisition of the MARSS Group's drone interceptor business, which it said is a good move by management given recent defence trends.

The post Forget Droneshield shares, I'd buy this ASX defence stock instead appeared first on The Motley Fool Australia.

Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended DroneShield and Electro Optic Systems. 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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