Why Red Cat Holdings Stock Just Popped

Key Points

• Red Cat will buy $800,000 worth of drone equipment from Unusual Machines.

• Red Cat has been partnering with Unusual for 18 months, and it uses its equipment in Red Cat's FANG drones.

• A big FANG sale could be imminent.

• 10 stocks we like better than Red Cat ›

Red Cat Holdings (NASDAQ: RCAT) stock soared 21.5% through 10:50 a.m. ET on Friday, and for a most unusual reason.

This morning, tiny Unusual Machines (NYSEMKT: UMAC) announced it had made an $800,000 million sale of "Aura Analog Camera, Aura VTX, Brave Flight Controller, Brave ESC, HDO+ Goggles, and motors" to Red Cat, which equipment "will be integrated into Red Cat's FANG drones."

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Unusual Machines stock is up a bit on the news -- but Red Cat Holdings stock is up much, much more.

Image source: Getty Images.

Introducing Red Cat Holdings

Red Cat describes itself as a "U.S.-based provider of advanced all-domain drone and robotic solutions for defense and national security," manufacturing everything from "Black Widow" aerial drones to uncrewed surface vessels.

In a statement on the Unusual Machines order, Red Cat CEO Jeff Thompson noted his company has worked with Unusual "for the past year and a half to produce FANGs" and that "we're ready to bring these American-made FPV drones to market." Thompson describes his company's relationship with Unusual as a "partnership" that "strengthens our ability to deliver high-performance, NDAA-compliant systems that defense and public safety operators can trust."

In other words, when Red Cat buys drone equipment from Unusual, it probably means that Red Cat itself is preparing to make a drone sale to someone else. Or at least that's what investors are betting on today.

Is Red Cat stock a buy?

Ever since the war in Ukraine upended how military conflicts are fought, investors have been clamoring for pure-play ways to invest in military drones. Red Cat appears to offer such an opportunity.

Analysts who follow Red Cat predict the company might earn its first profit next year. Today's news is reinforcing that belief, but only time will tell if it's correct.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.