The DroneShield Ltd (ASX: DRO) share price has certainly been on a rollercoaster ride in recent weeks.
At the end of May, the counter drone technology company's shares were fetching $1.13.
They then went on a tear and more than doubled in value to hit a peak of $2.72 in the middle of June.
Since then, it has been nothing but red, with the DroneShield share price sinking all the way back down $1.19 at the end of yesterday's session. That's a decline of 56% from its peak.
The big question now, though, is whether the company's shares have stopped falling. Is that the case? Let's find out.
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Why is the DroneShield share price falling?
Firstly, let's address the reason why DroneShield's shares have been falling in recent weeks.
The main reason is its valuation. At its peak, the company had a market capitalisation of $2 billion.
There's no doubt that DroneShield is growing at a rapid rate and has a very positive long term outlook. But a $2 billion valuation at this stage in its journey was simply too much.
In light of this, it is not surprising to see that many investors decided to sell some or all of their shares to lock in their gains.
And while there was talk of short sellers targeting the company, ASIC data shows that this wasn't the case.
For example, from mid to late June, its short interest was just 0.01% to 0.05% of its total shares outstanding. As a comparison, Pilbara Minerals Ltd (ASX: PLS) has short interest of 21.46%.
What else?
Also weighing on the DroneShield share price was the company's decision to raise funds for the second time in just over three months.
As we covered here, DroneShield raised $120 million at a 17.3% discount of $1.15 per new share earlier this week.
DroneShield's CEO, Oleg Vornik, explained the rationale for raising money again. He said:
This placement is enabling us to undertake a number of rapid R&D programs in response to end user requirements, over the next 12-24 months. This favourably positions DroneShield to fuel its revenue growth and further increase its margins, due to anticipated increase in AI SaaS offerings and higher sales pricing for the underlying hardware, as the C-UxS market continues to rapidly grow, supported by the current tailwinds through drones being used extensively for nefarious purposes globally.
Are the declines over?
The good news is that it does look like the DroneShield share price could be done falling soon.
For example, Bell Potter currently has a hold rating and $1.60 price target on its shares. This implies potential upside of 35% for investors from current levels.
So, while the market weakness could drag it lower again today, it might not be long until it starts to make a move higher again.
