Unusual Machines Inc. (UMAC:NYSEAMERICAN) secured a new customer for its drone motors, Red Cat Holdings Inc. (RCAT:NASDAQ), along with an initial order from it, a news release noted. Fulfilling it will mark the first time Unusual Machines will build motors to suit a U.S. drone producer's requirements.
As such, this latest development represents a milestone achievement for Unusual Machines in its drive to become a Tier 1 provider of motors to domestic unmanned aircraft system (UAS) makers.
"Our goal is to provide American drone manufacturers with high-performance motors at cost parity with the Chinese-made alternatives currently in use," said Unusual Machines Chief Executive Officer (CEO) Allan Evans in the release. "Red Cat's decision to source motors from Unusual Machines underscores the demand for a domestic supply chain that supports national security and regulatory compliance."
Red Cat requested from Unusual Machines three motor variants that it will integrate into one of its UAS platforms used by governments and commercial entities.
Unusual Machines expects to start delivering on Red Cat's order by the end of March, explained the release. Unusual Machines will begin producing the components in a partner's plant then continue at its own new U.S. manufacturing facility once it is completed.
This business between the two drone companies bolsters their existing relationship, an ongoing collaboration on FANG™, a high-performance, first-person-view (FPV) drone designed for defense applications.
Focus on Drone Components
In addition to motors, Unusual Machines also makes and sells other drone components for defense, commercial and recreational uses, and all comply with the U.S. National Defense Authorization Act.
In addition, the Orlando, Florida-based company owns two brands. Fat Shark specializes in FPV, ultralow-latency video goggles for drone pilots. Rotor Riot is a direct-to-consumer online store for small, acrobatic FPV drones and equipment.
Notable Growth Projected
Continued growth is forecasted for the global drone components market. Specifically, through 2028, it is projected to expand at an 11.4% compound annual growth rate (CAGR), according to Tech Sci Research. Increases in the number of industries using drones and in the various applications of drones will continue to fuel the market's "robust growth." North America is the largest market for drone components. China is the world's largest producer of essential UAS parts, the Center for Strategic and International Studies reported in December.
When it comes to the world's drone motors market, however, North America dominates, Future Market Insights pointed out in a January report. Last year, the continent had a 40%, or U$966.2 million (US$966.2M), share of the US$2.4 billion (US$2.4B) global market, according to Cognitive Market Research.
Through 2032, the North American market is projected to see an 18.7% CAGR. For each country, these are the 2024 market value and CAGR through 2030:
- U.S.: US$762.36 million / 18.5% CAGR
- Canada: US$115.95 million / 19.5% CAGR
- Mexico: US$87.93 million / 19.2% CAGR
In comparison, during the same forecast period, the CAGR for the global drone motors market is 16.8%, indicating "unprecedented growth" to US$16B, according to Cognitive. One driver will be ongoing technological advancements in these parts. Another will be escalating demand for high-performance motors that can fly longer, can perform better and/or can withstand the stress of continuous operation.
The Catalysts: Bans on Chinese Products
Any additional trade barriers on Chinese-made drones and drone parts, imposed by governments in the U.S., should increase demand for domestic-made versions, noted Unusual Machines in the news release. It is one company that stands to benefit.
Individual states are leading the way. In Nevada, a new law that went into effect on Jan. 1 prohibits public and law enforcement agencies from buying or using drones and related equipment from certain companies, including those flagged by the U.S. Department of Defense, reported DroneLife. This includes DJI, a big Chinese supplier of drones to the States.
At least two other states have bills before lawmakers proposing similar restrictions. Georgia's law would prohibit state agencies from buying and operating Chinese-made drones, DroneXL reported. Kansas' version would only disallow procurement, as noted in Hawver's Capital Report.
To date, the U.S. government has not enacted a full-out ban on Chinese-made UAS and UAS parts, but it might. Last year, such a move had bipartisan congressional support.
The U.S. has, however, put restrictions on some manufacturers whose business activities or products it deems a national security threat. Earlier this month, for instance, the Department of Treasury's Office of Foreign Assets Control added T-Motor, a China-based major global supplier of rotor components used in UAS platforms, to its sanctions list, thereby limiting the company's access to U.S. markets, AUVSI reported on Feb. 12.
Analysts Bullish on UMAC
Litchfield Hills Research Analyst Barry Sine initiated coverage on Unusual Machines on Feb. 19 with a Buy rating and a price target implying a 126% potential return.
The target, the analyst explained, "assumes the market will accord the shares twice the valuation of comps as its components strategy should allow for faster growth." This referenced strategy of Unusual Machines is to manufacture drone components for itself and other drone makers, a market potentially worth US$3B.
"Using conservative assumptions, we believe the company can get to US$150M in components revenue," Sine wrote. "Revenue should increase from US$5.7M in 2024 to US$47.5M in 2026." (This would represent 733% growth in two years' time.)
In support of these assertions, Sine made two key points. Drone use and applications are increasing, a trend likely to continue for a good chunk of time. Were the U.S. to ban Chinese imports of drones and drone components, this would create an "enormous market opportunity" for Unusual Machines and similar companies.
ThinkEquity Analyst Dr. Ashok Kumar, in his Dec. 6 research report, pointed out Unusual Machines' 26% gross margin and its 9% revenue growth, in Q3/24.
His comments included this: "With a bolstered cash position and new products in the pipeline, the company is positioned for continued growth. Through onshoring, product innovation, and strategic partnerships, the company aims to solidify its leadership in the drone components market."
Kumar doubled his target price on Unusual Machines, which suggestsa 13% upside from UMAC's current share price. The analyst reiterated his Buy on the company, too.
Ownership and Share Structure
About 11.1% of the company is owned by management and insiders, UMAC said. The rest, 88.9%, is retail.
Unusual Machines has 15.12 million outstanding shares and 13.08 million free float traded shares. Its market cap is US$173.45 million. Its 52-week high and low share prices are US$23.62 and US$0.98 per share, respectively.
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Important Disclosures:
- 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.
- 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.
- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.
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