Is It Too Late to Buy Ondas Stock?

Ondas (NASDAQ: ONDS) surged over the last year as its military drone technology has captured investors' attention. Now, as wars in Ukraine and Iran drag on, the drone has become a critical weapon in the military arsenals of countries.

However, as investors learned the value of Ondas' pivot in this industry, they bid the stock higher by around 110% over the last year. Despite that gain, investors still have a good chance of outperforming the market with tech stocks.

Image source: Getty Images.

The state of Ondas

Once known as a wireless broadband company, Ondas pivoted to the commercial drone business and has gained more recent attention. Amid a massive increase in demand, Ondas' backlog rose from $68 million to $613 million in six months.

To that end, it made acquisitions to accelerate its go-to-market abilities. Additionally, it partnered with Palantir to scale its operating platform and integrate its ground, air, and stratospheric domains into a single AI-driven system.

At a $4.3 billion market cap, Ondas is a fraction of the size of industry giants like Northrop Grumman and RTX.

Still, Ondas announced $70 million in new orders in one month ending in late July. It won contracts from the U.S. Army and U.S. Air Force. Israel also selected it to build its next generation of military attack drones, indicating the company can compete with industry giants.

Looking forward, Markets and Markets forecasts a 26% compound annual growth rate (CAGR) for the military drone market through 2031, taking an estimated $35 billion market in 2026 to $109 billion by that year.

Ondas appears to be far outpacing that estimate, as analysts predict a revenue gain of more than tenfold in 2026 before growth slows to a forecast 87% gain the next year.

Although that may not turn the company profitable, it should ease worries about Ondas' 29 price-to-sales (P/S) ratio. Furthermore, amid the forecast revenue gains, Ondas now trades at a forward P/S ratio of 8. Given that increase and the surging demand for military drones, Ondas' stock appears to have plenty of room to rise.

It's not too late to buy Ondas stock

Despite recent gains, Ondas' stock has plenty of room to run.

Admittedly, a 29 P/S ratio may seem high, even for a growth stock in an emerging industry. Fortunately, its growth is so massive that the P/S ratio is on track to fall into the single digits quickly. Moreover, the company has won contracts from the U.S. and Israeli militaries, often over large, established competitors.

Ultimately, as drones change the face of warfare, Ondas looks increasingly well-positioned to play a critical role. Even at its current valuation, Ondas' growth should benefit its investors over time.

Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ondas, Palantir Technologies, and RTX. The Motley Fool has a disclosure policy.