Is a Breakout Imminent for This Florida Drone Stock?
Contributed Opinion

Since we last looked at Unusual Machines Inc. (UMAC:NYSEAMERICAN) on June 20, the stock has gained 33%, and there has been a stream of positive news for the company.

This includes Unusual Machines being Selected to Provide the First Drone for Red Cat Holdings Inc.'s (RCAT:NASDAQ) FANG(TM) Line of First-Person View Strike Systems. This partnership underscores Unusual Machines' commitment to onshoring drone and component production, as well as its expertise in FPV technology. In the middle of July, Unusual Machines Launched the NDAA Compliant, Made in the U.S.A. Flight Controller for FPV Drones, and on the seventh of this month came the news that Unusual Machines' FPV Flight Controller was Approved for Blue UAS Framework, a significant milestone underscores Unusual Machines' commitment to providing secure, reliable, and domestically manufactured drone components for the U.S. government and other critical sectors.

Lastly, a few days back, it was announced that Unusual Machines Adopted HP's Multi Jet Fusion 3D Printing for Drone Parts Manufacturing. So, with all these positive developments, it is hardly surprising that the stock has been forging ahead in recent weeks.

The following paragraphs and accompanying slides from the company's investor deck are just as relevant and important as when they were set out in the original article, so they are repeated here for convenience, updated to take account of the latest developments and followed by a new appraisal of the stock after its recent gains.

The drone industry is very much a growth market and looks set to remain so for the rest of this decade, with the primary drivers being expanding military conflict, surveillance, and, increasingly, in the case of U.S.-based drone and drone component manufacturers such as Unusual Machines, what is called "onshoring" which means production returning from overseas places like China back to the homeland in large part due to security concerns and this is a process that is likely to be assisted and expedited by the government.

While Unusual Machines is positioned to benefit, possibly greatly, from all the above, it is important to keep in mind that it is already an established player in the consumer drone space with its e-commerce platform "Rotor Riot" and generates $5 million revenue a year with 20 – 30% year on year growth that is expected to continue so downside at the current stock price is considered to be limited. The company thus caters to all segments of the drone market — Drone Racing, which involves the use of fast and agile drones in competitive events, Freestyle Flying where drones are for hobby use and aerial acrobatics, and Cinematic Filming in which drones are used to provide high-quality videos often for the tourism industry and as mentioned already, for Defense Applications.

In February the company successfully closed an IPO (Initial Public Offering) of 1.25 million shares at a price of $4.00 a share and a part of the proceeds was used to buy the strong brands Fat Shark and Rotor Riot via a purchase agreement with their creator, Red Cat Holdings and as a result of the transaction Red Cat became a big shareholder of the company with approximately 47% of the stock.

This is believed to be a good point for investors to take positions in the stock not just because of its recent basing action following the severe downtrend in the Spring but because of important catalysts now coming into play, including those set out in the recent news ítems listed above, such as the launch of the FPV flight controller and its gaining of approval.

We are now into the seasonal round of government buying contracts, which started towards the end of July and continues through September, intensified this year by a backlog holdover due to budgets being passed late last year and by orders being ramped up in anticipation of the American Securities Drone Act coming into effect in Jan 2026, which could see the company win major orders that would "light a fire" under the stock, but as mentioned above, even without this, the company is on a dynamic growth path with its consumer-driven business.

Lastly, the CCCP (Chinese Communist Party) Drone Act could increase the company's sales of Fat Shark products and video transmitter products and FPV (First Person View) goggles by excluding the main Chinese competitors from the market.

Before we examine Unusual Machines' increasingly positive-looking stock chart, we will use slides from the company's latest investor deck to overview the outlook for the drone business and Unusual Machines, in particular.

The first slide provides an overview, and the main point made on it is that growing global conflict and polarization is going to shift a significant segment of demand back from China to domestic production in the West.

The second slide provides a sense of how the company is evolving from its established position in the market to take advantage of the new opportunities being afforded by new legislation and the increasing  "onshoring" of drone and drone part production with an eye to potential acquisitions that are cash flow positive.

The next slide sets out the business model.

Note, in particular, the company's strong growth last year in the FPV (First Person View) market and the plan to transition component manufacturing back to the U.S.

Components have been a big part of the company's business for a long time before it was spun out of Red Cat, and they still are with robust sales in 2023.

The drone market should see strong growth through the end of this decade, as the graph on this next slide makes clear.

One of the biggest drivers of demand for drones is, of course, the defense industry, and with conflict around the world looking set to expand, so will the demand for drones and associated support and technology, and the company is set to benefit from the tilt away from Chinese produced drones and components in Western countries.

At present, China dominates the drone market with 70% of the business, and even drones made elsewhere usually contain key components made in China.

We can thus expect to see a movement toward domestic suppliers of components, which will, of course, benefit companies like Unusual Machines.

After decades of offshoring production to the point that the US has become a service economy, geopolitical factors are promoting a shift back in the direction of domestic production, especially in militarily sensitive industries like defense equipment and drone manufacture, which will work to the advantage of Unusual Machines.

This next slide shows companies involved in the U.S. drone marketplace.

Lastly, this slide shows the capitalization of the company, and on it, we see that there are only just over 9 million shares in issue, although this is believed to now be nearer to 10 million, and of these, almost half, or 47%, are owned by Red Cat Holdings which was the parent company of Fat Shark and Rotor Riot that the company acquired in February so that there are only about 3 million shares in the float.

We could have bought Unusual Machines at a better price if we had held off for another two weeks. Nevertheless, we are still up 33% at the time of writing from where we bought as the stock has advanced towards the breakout point of a Head-and-Shoulders bottom, as we can see on its latest 6-month chart below.

A breakout from this pattern will mark the start of a major new bull market in the stock. With volume building up this month and the now rising 50-day moving average coming into play beneath to support the price and momentum (MAD) increasingly positive, such a breakout looks imminent, so we stay long, and Unusual Machines continues to be rated a Strong Buy here.

Unusual Machines' website.

Unusual Machines Inc. (UMAC:NYSEAMERICAN) closed at US$2.00 on August 9, 2024.

Important Disclosures:

1. Unusual Machines Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000. 
2. For this article, the Company has paid Street Smart, an affiliate of Streetwise Reports, US$1,500.
3. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Unusual Machines Inc. and Red Cat Holdings Inc.
4. Author Certification and Compensation: [Clive Maund of clivemaund.com] was retained and compensated as an independent contractor by Street Smart to write this article. Mr. Maund is a technical analyst who analyzes historical trading data and he received his UK Technical Analysts’ Diploma in 1989.  The recommendations and opinions expressed in this content reflect the personal, independent, and objective views of the author regarding any and all of the companies discussed. No part of the compensation received by the author was, is, or will be directly or indirectly tied to the specific recommendations or views expressed.
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Clivemaund.com Disclosures

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks cannot be construed as a recommendation or solicitation to buy and sell securities.