Drone stocks are experiencing a surge as interest in the sector grows, and the partnership between the drone company Red Cat Holding (RCAT) and software giant Palantir (PLTR) has catapulted the company into the market’s limelight. Red Cat’s shares have jumped over 1000% in the past year. Expectations are high that the new administration will provide a funding boost to the sector, particularly for U.S.-made drones. Despite recent earnings missing expectations, Red Cat increased its revenue guidance from $50 million to a range of $80 million to $120 million for 2025, suggesting further upside potential. Investors interested in exposure to the growing drone industry might find RCAT an appealing option.
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A Potentially Game-Changing Partnership
Red Cat is a drone technology firm at the forefront of integrating robotic hardware and software for various operations. This includes sectors such as the military, government, and commercial industries. The company operates through its two subsidiaries, Teal Drones and Flightwave Aerospace, developing state-of-the-art ISR and Precision Strike Systems.
Among its products are the Teal 2, a small unmanned system with top-tier thermal imaging capabilities; the Edge 130 Blue Tricopter – known for its enhanced endurance and range; and FANG, a line of NDAA-compliant FPV drones fine-tuned for military applications with exact strike capabilities.
Red Cat recently partnered with Palantir Technologies to incorporate its visual navigation and artificial intelligence technology into its Black Widow drones. This development comes after the U.S. Army opted for the Black Widow for its Short Range Reconnaissance Program.
Palantir’s visual navigation software solves the long-standing problem of long-range inertial drift in drones by comparing its position to updated satellite imagery onboard. Red Cat’s CEO, Jeff Thompson, has stated that with the implementation of Palantir’s tech, the Black Widow will rank among the most competent drones deployed by the Department of Defense, and its compact size will make it easily portable.
Lackluster Q2 but Ambitious Growth Guidance
Red Cat recently reported results for Q2 of FY2025. Revenue of $1.53 million fell short of analysts’ expectations by $2.6 million. The company reported a year-to-date revenue of $4.3 million, a 24% decrease compared to the $5.7 million generated over the same period last year. The dip in revenue is attributed to the firm’s deliberate shift of focus to the Black Widow from the TL2 model, with mass production of the new product planned for 2025.
Total operating expenses of $9.12 million contributed to a net loss of $13.3 million and GAAP earnings per share (EPS) of -$0.17, which missed consensus projections by $0.08.
Operational cash usage was $12.5 million, an 11% increase from last year. The second quarter also saw increased staffing and resources to meet the demands of forthcoming projects, including the Army contract and additional Black Widow Webb and Edge 130 sales expected in the future. The quarter ended with $5.7 million in cash and accounts receivable, with a further $6 million financing closed subsequently.
However, with the company’s selection as the U.S. Army’s Short Range Reconnaissance Program winner, management believes it is now well-situated to meet its projected revenue guidance of $80-$120 million for 2025 as it continues to invest in operational and manufacturing capacity growth.
Trending Up, But Potentially Pricey
The stock has enjoyed a strong upward trend, with the shares climbing 192% in the past three months. It trades in the upper half of its 52-week price range of $0.56 – $15.27 and shows positive price momentum by trading over the 50-day (8.84) and 100-day (6.65) moving averages.
The stock lacks Wall Street coverage, though that is likely to change. The share price trades at a significant premium to its current sales, with a P/S ratio of 39.74x, making it a high-risk, high-reward opportunity for investors willing to pay up for growth potential (if the share price continues its performance from 2024, it will be a screaming bargain…caveat emptor).
Red Cat in Review
Red Cat has made impressive strides in the booming drone sector. Its shares have seen a significant uptick, bolstered by a partnership with software titan Palantir and expectations of government backing for U.S.-made drones. Despite a recent disappointment in quarterly earnings, Red Cat revised its revenue projections upward for 2025, suggesting more room for growth. For those looking to tap into the fast-growing drone market, Red Cat offers an appealing – though not without risks – investment route.
