Why Did Red Cat Stock Drop Today?
Key Points
Safe Pro and Red Cat have won an Army contract for landmine-detecting drone aircraft.
No contract value was announced.
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It's been two weeks now since Red Cat Holdings (NASDAQ: RCAT) stock announced its big plan to collaborate with drone software company Safe Pro Group in a U.S. Army exercise to identify landmines, unexploded cluster munitions, and "ambush FPV drones" from the air. Two weeks later, we just learned that this demonstration was a success -- and Safe Pro has won a contract that it will share with Red Cat.
Not that you would guess it from today's stock prices. Both Safe Pro and Red Cat shares are down, with Red Cat yowling for an 8.8% loss through 11:40 a.m. ET -- reversing yesterday's tiny 0.7% gain after the contract was first announced.
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Image source: Getty Images.
What stepped on Red Cat's tail?
Why is Red Cat stock reacting negatively to what sounds like positive news?
This technology works by having a Red Cat Black Widow drone with a camera fly over the battlefield and use its cameras to seek out threats below. Safe Pro's AI algorithms, running on an onboard computer, then identify threats from the visual data.
The Red Cat/Safe Pro contract is the Army's first order for an AI-powered threat analysis kit that equips drones to identify the kinds of threats described above, from above. So Red Cat and Safe Pro have demonstrated a new use case for military drones -- one that can save lives while also making money for defense contractors.
What it means for Red Cat
"Money" may be precisely the point at issue here, however, because neither Safe Pro nor Red Cat have yet confirmed how much revenue they will make off this initial contract, nor whether the work is profitable.
This lack of clarity might be the reason investors aren't rewarding Red Cat for the contract win today.
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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.
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