Is now the time to invest in EOS shares?
Electro Optic Systems Holdings Ltd (ASX: EOS) shares have been volatile in recent days. Since the company released its response, selling pressure appears to have finally eased.
After emerging from a trading halt on Tuesday, EOS shares fell sharply from $6 to an intraday low of $5.05. However, buyers stepped in, with the stock rebounding strongly to close at $6.71.
Today, EOS shares are trading slightly lower at $6.63, down 1.19%.
While the share price has edged lower, recent trading suggests panic selling has eased, and investors are reassessing the business on fundamentals.
What did EOS say in its response?
EOS released a detailed 15-page response addressing the claims made by short seller Grizzly Research.
The company rejected the report's conclusions and said the allegations were misleading and selective. Importantly, EOS did not disclose any new accounting issues or regulatory breaches.
On the high energy laser contract in South Korea, EOS reiterated that the agreement was always disclosed as conditional. The company also confirmed that the contract was never included in its reported backlog figures, which directly addresses concerns that near-term revenue had been overstated.
EOS also defended its acquisition of MARSS, explaining that the business expands its software and command-and-control capabilities, which are increasingly vital for counter-drone systems. Management said the acquisition was the result of a structured review process and was supported by due diligence across multiple jurisdictions.
On cash flow and funding, EOS highlighted its strengthened balance sheet following the sale of its EM Solutions business.
A closer look at the balance sheet
As at the end of January, EOS reported cash of approximately $128 million. The company also has access to a $100 million committed debt facility.
One of the key issues raised by the short seller was funding risk. Based on the company's disclosures, EOS does not appear to be under immediate pressure to raise capital.
EOS also reported an unconditional contract backlog of around $459 million as at 31 December 2025. That backlog provides revenue visibility over the next few years and excludes the conditional Korean laser contract.
Why investors are still interested
EOS operates in defence markets where demand is growing. Rising global defence spending, increased focus on counter-drone technology, and interest in directed energy weapons all support long-term demand for the company's products.
The recent sell-off has also materially changed the valuation. EOS shares are now down around 33% over the past month, despite no change to the company's core assets or long-term opportunity.
That does not mean the risks have disappeared. Contract timing, execution risk, and share price volatility remain issues investors need to factor in.
Foolish Takeaway
EOS shares remain unsettled, but the sharp rebound after the trading halt suggests the market has begun to digest the company's response.
At current levels, the balance between risk and reward looks more compelling than it did a few weeks ago.
The post Is now the time to invest in EOS shares? appeared first on The Motley Fool Australia.
Motley Fool contributor Aaron Teboneras 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 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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