Why is the DroneShield share price surging 9% on Wednesday?

DroneShield Ltd (ASX: DRO) shares are taking off on Wednesday morning.

The DroneShield share price is currently up 8.98% to $1.76, after closing yesterday at $1.615.

At one stage, the counter-drone stock climbed as high as $1.82 as investors reacted to an update released before market open.

It's a welcome move for shareholders after a difficult year, with DroneShield shares still down more than 60% over the past 12 months.

So, what has the company announced today?

DroneShield lands huge US opportunity

According to the release, DroneShield's US subsidiary has secured a new contract with the US Joint Interagency Task Force 401 (JIATF-401).

The 3-year Indefinite Delivery, Indefinite Quantity (IDIQ) contract has a ceiling value of US$500 million.

It gives DroneShield the opportunity to compete for future orders as the US rolls out more counter-drone systems across the country.

These systems will be used to protect military bases, critical infrastructure, and other high-priority locations from drone threats.

However, there is one thing investors need to keep in mind before getting too excited.

The US$500 million isn't guaranteed revenue, and DroneShield said the contract doesn't lock in any orders at this stage.

Still, I think this is a pretty big development.

DroneShield now has a way to compete for some potentially large US defence orders over the next 3 years.

US relationship continues to grow

It's important to note this isn't DroneShield's first piece of work with JIATF-401.

Earlier this year, the company secured a $24.9 million contract to supply mobile and fixed-site counter-drone systems.

DroneShield has since delivered its DroneSentry-X Mk2 systems, completing installation, testing, and operator training in around 80 days.

Another 3 systems are also planned under a modification to the original contract.

Could short sellers add fuel to the rally?

There could also be another factor helping DroneShield shares today.

The latest data shows short interest in the company was sitting at 14.76% as of 23 September.

That puts DroneShield at the top of the list as the most shorted stock on the ASX, with plenty of traders betting its share price will fall.

Keep in mind, though, today's announcement could put some of those short sellers under pressure.

DroneShield shares are already up almost 9%, and if the buying continues, some short sellers could decide it's time to close their positions.

To do that, they need to buy DroneShield shares back on the market.

That could add more buying pressure and give the share price another boost.

I'd keep a close eye on this stock before the year's end.

The post Why is the DroneShield share price surging 9% on Wednesday? 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 DroneShield. 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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