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A Look At Electro Optic Systems (ASX:EOS) Valuation After Major Defense Contract Wins And Order Backlog Growth

Simply Wall St · 6d ago

Electro Optic Systems Holdings (ASX:EOS) has drawn investor attention after securing several large defense contracts, lifting its order backlog above A$400 million. This has coincided with strong recent share price momentum.

See our latest analysis for Electro Optic Systems Holdings.

Those contract wins have arrived alongside a powerful share price run, with a 30 day share price return of 111.88% set against a year to date share price decline of 5.03% and a very large 1 year total shareholder return. This suggests that momentum has recently been building after a tougher stretch.

If you are looking beyond defense contractors, this could be a useful moment to scan other aerospace and defense names using aerospace and defense stocks as a starting point for fresh ideas.

With revenue growing, the business still loss making and the share price now trading above the current analyst target and intrinsic estimate, you have to ask: is EOS now overextended or is the market correctly pricing in future growth?

Most Popular Narrative: 22.5% Overvalued

With Electro Optic Systems Holdings last closing at A$9.45 against a narrative fair value of A$7.72, the widely followed story is leaning towards a stretched valuation and builds its case off ambitious growth and margin assumptions.

Analysts are assuming Electro Optic Systems Holdings's revenue will grow by 30.0% annually over the next 3 years. Analysts assume that profit margins will increase from -59.1% today to 10.0% in 3 years time.

Read the complete narrative.

Curious what turns a deep loss into a profit story in just a few years? The narrative leans on aggressive revenue expansion and a much richer earnings multiple, all discounted back using a specific hurdle rate. Want to see exactly how those moving parts stack up against today’s share price?

Result: Fair Value of $7.72 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, strong global defense spending and EOS's role in high energy laser and counter drone systems could support revenue and margins, and challenge the overvaluation story.

Find out about the key risks to this Electro Optic Systems Holdings narrative.

Build Your Own Electro Optic Systems Holdings Narrative

If this story does not quite fit how you see EOS, you can stress test the assumptions yourself and build a custom view in minutes, Do it your way.

A great starting point for your Electro Optic Systems Holdings research is our analysis highlighting 1 key reward and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.