Why Ondas Stock Zoomed 32% Higher in May

Shares of Ondas (NASDAQ: ONDS) ballooned 32% higher in May, according to data from S&P Global Market Intelligence. The stock soared after reporting strong quarterly earnings on May 14th, highlighting its rapid growth in the autonomous drones and secure wireless network market. Over the last year, the stock is up 570%.

Here's why Ondas stock was rising yet again in May, and whether you should get in on the party and buy some shares yourself.

Rapid growth and new contract wins

Ondas operates as a drone provider, but with a twist: its systems are entirely automated. These automated drones can be used for many purposes, such as routine system checks without a human operator. It is actually the first company to get full authorization to sell this type of drone system in the United States.

Last quarter, Ondas' revenue grew by more than 10x to $50 million, making it one of the fastest-growing companies in the world. This is mainly due to its many acquisitions in the defense space, including drone technologies, drone detection systems, artificial intelligence (AI) software, and even a stratospheric balloon company.

Ondas has financed these acquisitions with its soaring stock price, while also raising capital for its own balance sheet through equity raises. At the end of last quarter, it had $1.48 billion in cash and equivalents on the balance sheet.

Investors see this aggressive roll-up strategy as the best way to play the drone defense market, which is growing like gangbusters. Ondas is guiding to $390 million in revenue this year, a 670% increase from the previous year.

Image source: Getty Images.

Time to buy Ondas stock?

The headline growth figures for Ondas will make you salivate. From an investor's perspective, we need to provide context on the total dilution incurred to finance these deals. Over the last 12 months, Ondas has generated $97 million in revenue, up 500% year-over-year. However, revenue per share -- which takes into account shareholder dilution from equity raises -- is up much less, at 97%. This is still solid growth, but nowhere near as explosive as its nominal figures would suggest.

What's more, Ondas trades at a market cap of $5.4 billion and a forward price-to-sales ratio (P/S) of 13.8, which is still expensive, especially given that Ondas is financing its growth through share issuance and is not profitable today. While the stock has been red hot in recent months, investors should stay away from Ondas stock for the time being.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ondas. The Motley Fool has a disclosure policy.