ONDS Stock Sinks 22% YTD: Is it Time to Hold Tight or Head for Exit?

Ondas Inc ONDS stock has declined 21.9% year to date (“YTD”), reflecting concerns about its aggressive M&A, continued losses and execution risks. However, the business momentum is sharply in contrast to the stock movement, with robust revenue growth and massive backlog.

Price Performance

Image Source: Zacks Investment Research

The company raised the full-year guidance as it continues to expand its presence across counter-UAS, precision strike, intelligence, surveillance and reconnaissance (“ISR”) and autonomous ground systems.

However, with stock under pressure, investors face a difficult question: Does ONDS’ growth trajectory provide an attractive entry point, or do profitability and integration risks warrant caution?

ONDS: Strong Operating Story Despite Weak Stock Performance

The disconnect between ONDS' stock price performance and its underlying business momentum is hard to overlook. While shares have declined YTD, the company's revenue growth has accelerated dramatically.

Ondas’ second-quarter 2026 revenues surged more than 13 times year over year to $83.8 million and increased 67% sequentially. The top-line growth reflected acquisitions and solid execution across Ondas' core business. Pro forma organic revenues increased 85% year over year. Companies acquired since June 30, 2025, contributed $70 million of the year-over-year revenue increase, including $21.8 million from Sentrycs and $13.2 million from Omnisys. Airobotics added $6.8 million, driven by higher Optimus System and Iron Drone Raider product and service sales.

On the earnings call, management noted that Ondas captured $175 million in new orders during the second quarter and $105 million through the quarter to date. Its two-year strategic program pipeline exceeded $11 billion, spanning aerial security, intelligence, surveillance and reconnaissance, precision strike and autonomous ground systems.

Visibility is improving alongside revenues. Reported backlog reached approximately $613 million as of June 30, with pro forma backlog of $757 million including DZYNE and Cyberhawk acquisitions.

Management is not just focusing on selling drones but on connecting a portfolio of technologies into integrated systems spanning detection, intelligence, command and control, electronic warfare, and kinetic defeat. SkyWeaver, developed with Palantir, is intended to become an Edge AI layer connecting intelligence across the portfolio. Ondas recently completed ground and aerial testing of the platform, while it is also combining DZYNE's Sawtooth technology with Sentrycs' Cyber-over-RF capabilities for counter-UAS applications.

Ondas Holdings Inc. Revenue (Quarterly)

Ondas Holdings Inc. revenue-quarterly | Ondas Holdings Inc. Quote

Precision Strike is another emerging catalyst. Mistral is set to commence deliveries against approximately $240 million of orders associated with the U.S. Army's lethal unmanned strike IDIQ. Management expects those deliveries to begin in the third and fourth quarters and continue into 2027.

The company raised its full-year revenue target to $525-$550 million from the previous target of at least $525 million, representing more than 10 times the reported figure for 2025. At the midpoint, the outlook implies more than 30% year-over-year organic growth on a pro forma basis.

For the third quarter, revenues are expected at $140-$155 million, implying approximately 76% sequential growth at the midpoint and more than 30% organic growth year over year on a pro forma basis.

Profitability Remains the Key Test for ONDS

For all the excitement surrounding revenue growth, profitability remains the key test for ONDS.

Second-quarter operating expenses were $199 million, substantially exceeding the quarterly revenues of $83.8 million. While more than half of expenses consisted of noncash or acquisition-related items, adjusted cash operating expenses still totaled approximately $93 million. The company incurred approximately $4.4 million of acquisition-related transaction costs.

Adjusted EBITDA remained a loss of approximately $51 million. The company expects the second quarter to represent the peak adjusted EBITDA loss, but actual profitability still depends on anticipated second-half revenue ramp materializing. Management expects some gross-margin pressure during the second half of 2026 because of product mix and excess capacity associated with newly acquired businesses.

However, the company expects adjusted EBITDA losses to narrow beginning in the third quarter and has pulled forward its profitability timeline. Management now targets adjusted EBITDA profitability for the operating platform, including OAS and Ondas Sentinel, by the fourth quarter of 2026 and company-wide adjusted EBITDA profitability by the fourth quarter of 2027.

That makes the next several quarters particularly important. Strong revenue growth without corresponding improvement in operating leverage would weaken the core thesis.

Execution Risk and other Challenges

Extensive M&A amplifies execution risks. Multiple acquisitions in such a short period can create integration overload and execution risks, since achieving targets depends on timely integration and conversion of backlog into revenues.

Despite strong revenue growth, Ondas reported operating cash outflows of $137.4 million in the first half, a substantial increase from $15.1 million the prior year. Continued cash burn could become a concern if revenue growth falters.

Increasing competition in the already crowded drone space is another headwind.  

The drone industry is experiencing rapid growth, with the unmanned aerial vehicle drones market expected to witness a CAGR of 9.3% from 2026 to 2031, according to a report from Mordor Intelligence. Competition has intensified, with drone companies such as Red Cat Holdings RCAT, Kratos Defense & Security Solutions KTOS and AeroVironment AVAV vying for a larger share of the lucrative opportunity.

Image Source: Zacks Investment Research

Given these factors, analysts have downgraded their earnings estimates for ONDS’ current year over the past 60 days.

ONDS: Valuation Leaves Room for Debate

ONDS is trading at a forward 12-month price-to-sales ratio of 4.92X, a discount compared with the Zacks Wireless National industry’s 8.1X. The valuation gap likely reflects the investors’ concerns about profitability and execution despite ONDS’ rapidly expanding revenue base.

Image Source: Zacks Investment Research

The forward 12-month price/sales multiple for KTOS, AVAV and RCAT stands at 4.35X, 3.18X and 5.38X, respectively.

Year to date, Red Cat has gained 5.5%, while Kratos Defense and AeroVironment have declined 37% and 40.2%, respectively.

ONDS: Hold Tight or Head for Exit?

Ondas is moving forward with strong momentum in orders and backlog, but much depends on its ability to execute and integrate recent acquisitions effectively.

With ONDS carrying a Zacks Rank #4 (Sell), investors may be better off exercising caution and waiting for clearer evidence of improving profitability and cash generation.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here. 

Radical New Technology Could Hand Investors Huge Gains

Quantum Computing is the next technological revolution, and it could be even more advanced than AI.

While some believed the technology was years away, it is already present and moving fast. Large hyperscalers, such as Microsoft, Google, Amazon, Oracle, and even Meta and Tesla, are scrambling to integrate quantum computing into their infrastructure.

Senior Stock Strategist Kevin Cook reveals 7 carefully selected stocks poised to dominate the quantum computing landscape in his report, Beyond AI: The Quantum Leap in Computing Power.

Kevin was among the early experts who recognized NVIDIA's enormous potential back in 2016. Now, he has keyed in on what could be "the next big thing" in quantum computing supremacy. Today, you have a rare chance to position your portfolio at the forefront of this opportunity.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research