Best Defence Stocks – How Do DRO, EOS, and ASB Stack Up?

Defence stocks have been on a dramatic bull run heading into 2026, with the conflicts between Russia and Ukraine, and now the US and Iran bringing the topic ever more into the forefront. With the US also lobbying NATO allies to increase defence spending, there has been a huge increase in commitment from European nations to invest in the area. Investing in defence stocks in the retail sector has also been on the move, such has been the rate of growth, yet sentiment in some of the higher growth names has shifted.

Here we are going to take a look at the three of the best defence stocks in Aussie markets, to see how they compare, and which may have the better long term case.

ASX Listed Defence Stocks

DroneShield (DRO)

DroneShield is a counter-drone technology company focused on detecting, tracking and defeating drone threats. Its products include wearable drone-detection systems, command-and-control platforms, fixed-site systems and handheld countermeasure products.

This is the purest defence-growth name in the group. DroneShield is not a diversified manufacturer with a defence segment attached, but a specialist counter-UAS company, exclusively focused on counter-drone technology, a market now valued at more than US$10 billion.

The DRO share price move had already been enormous. DRO shares have risen from A$0.63 at the start of 2025 to hit highs of A$6.70 in October for a more than 1,000% gain. That is before shares flipped into reverse, back to A$1.80 after a 70% drawdown. That means the market has already discovered the story, and momentum has shifted. With DroneShield, you are not buying an ignored small cap anymore; you are buying a high-expectation defence technology stock that needs to keep delivering contract wins, revenue conversion and operating leverage.

The investment case is easy to understand here as drone warfare has changed quickly, and demand for counter-drone systems is no longer theoretical. Military users, airports, prisons, utilities, stadiums and critical infrastructure owners all have reasons to care about drone detection and defeat.

The growth has been impressive, even if not enough to satisfy market appetite following the earlier run-up. Revenue TTM is A$216.8 million, and quarterly revenue growth was 316.8% year on year. The company’s 1Q26 update reported A$74.1 million of revenue, up 121% on the prior corresponding period, A$77.4 million of customer cash receipts, and A$154.8 million of FY2026 committed revenue to date.

That is a strong operating trajectory. The issue is valuation and volatility. DroneShield trades on 8.9 times sales, 5.7 times book, and the forward P/E is still high at around 80. The share price is also down nearly 40% over the past year and sharply below its 52-week high, which shows how quickly sentiment can reverse.

Austal (ASB)

Austal is a shipbuilder and defence contractor that designs, builds and supports vessels for defence and commercial customers. Its operations span the United States, Australia and other international markets, with exposure to naval vessels, patrol boats, ship support and sustainment.

This is the most established business in the group. Unlike DroneShield and EOS, Austal already has large-scale revenue, shipyard capability, long-cycle contracts and a clearer defence-industrial role. It is less exciting than the counter-drone names, but it is also more grounded.

The share price setup is very different however, with ASB shares having fallen to A$3.66 over the past year, a decline of 39.8%. That means Austal has not been chased in the same way as EOS. In fact, it may be the better value candidate if you want defence exposure without paying peak thematic multiples.

It is not the flashiest defence stock, but it has the clearest numbers. Austal has A$2.11 billion of revenue TTM, A$167.2 million of EBITDA, a trailing P/E of about 15.9, and a forward P/E of about 6.5. That is a much more grounded valuation than DroneShield or EOS.

The company’s FY2025 result showed revenue of A$1.823 billion, up 24%, EBIT of A$113.4 million, up 101%, and net profit after tax of A$89.7 million, up 503%. It also reported a near-record A$13.1 billion order book including options, with a 10-plus-year horizon. Austal also said its Strategic Shipbuilding Agreement with the Commonwealth of Australia should underpin long-term work at Henderson in Western Australia.

The bigger structural point is Austal’s relationship with the Australian Government. The company signed the Strategic Shipbuilding Agreement with the Commonwealth of Australia, formally appointing Austal Defence Australia as the strategic shipbuilder for Tier 2 surface combatants at Henderson in Western Australia.

That matters because it gives Austal something the smaller defence technology names do not have: a long-duration sovereign shipbuilding role. It also means the investment case is less dependent on one product cycle or one technology breakthrough. The downside is that shipbuilding can be lower margin, capital intensive and execution-heavy. Contracts are large, but delivery risk is real. Austal’s profit margins are not spectacular, and the stock has no current dividend yield. It is not a quick compounder; it is a defence-industrial value and execution story.

Austal shares will not have the explosive growth profile of DRO or EOS, but it has real revenue, a large order book, government-backed strategic relevance and a more reasonable valuation. Sitting close to 52 week lows does not exactly scream buy, yet much of the selling may already have taken place here. Over longer term horizons, ASB could be the sensible pick, but markets will want to see a shift in the upcoming reports if valuations are to return to previous heights.

Bottom Line

If you want the best defence stock from this shortlist, the answer depends on what your goals are, and how happy you are with risk.

DroneShield is the purest counter-drone growth story, with the clearest exposure and strongest current revenue momentum, yet the valuation already assumes a lot of success.

Austal shares make a case as the most established name of the bunch, with the largest revenue base, the clearest contract visibility, and a strategic shipbuilding role that may support long-term earnings. It looks like the best value-adjusted pick of the three.

EOS shares on the other hand offer the biggest potential upside swing, with exciting technology exposure, especially in high-energy lasers, but it is the highest-risk name because profitability is still not settled and the share price has already moved dramatically.

There is no right or wrong call here, and if you are looking for a balanced portfolio it may make sense to take risk adjusted positions in each, or to consider a broader thematic ETF that could give you exposure to a set of defence names that reach outside of the ASX. There are after all some big European and US heavyweights that you might want some part of if the sector is one you think has legs.

FAQs

Can a defence share be an ethical investment?

It depends on your ethical framework. Some investors exclude defence completely, whilst others make a distinction between offensive weapons and technologies used for deterrence, protection, border security, counter-drone defence or sovereign capability. A counter-drone system protecting civilian infrastructure may feel different from a weapons platform, even though both sit inside defence.

Why are counter-drone stocks attracting so much attention?

We have seen in recent conflicts that drones have changed the economics of conflict. Cheap drones can threaten expensive vehicles, ships, infrastructure and bases, creating demand for systems that can detect, track and defeat drones at lower cost.

What is the biggest risk in defence small caps?

The biggest risk is usually not demand, but execution and governance. A company can have a strong pipeline and exciting technology, but contracts can be delayed, revenue recognition can be lumpy, customer approvals can take longer than expected, and manufacturing scale-up can be difficult.