Unusual Machines Inc.'s (UMAC:NYSEAMERICAN) Q2/25 results were as expected, reflecting "solid execution" and a "clearer mix shift," reported Barry Sine, analyst with Litchfield Hills Research, in an Aug. 19 research note.
"Unusual Machines is standing at the threshold of a major order cycle," Sine wrote. "Execution on defense supply chain integration, combined with domestic production scale-up, could rapidly transform the company's revenue trajectory and margin profile."
99% Upside Potential
Unusual Machines was trading at about $10.05 per share at the time of Sine's report, "at a compelling risk-reward," the analyst noted. "With its balance sheet fortified, domestic manufacturing advantage and exposure to defense procurement tailwinds, we believe UMAC offers asymmetric upside as order visibility improves in the coming quarters."
In comparison, Litchfield's target price on the U.S.-based drone components manufacturer is $20 per share, implying a potential return for investors of 99%.
Unusual Machines remains a Buy.
The company has 30.4 million shares outstanding, a market cap of $305.9 million ($305.9M) and a 52-week range of $1.28–23.62 per share, Sine reported.
Gross Margin Growing
Sine reviewed the key takeaways from Unusual Machines' Q2/25 financials. Revenue was $2.12M, consistent with estimates. Of this, 61% derived from retail sales and 31% from enterprise sales.
Retail sales were 3.9% higher in Q2/25 than in Q2/24, remaining steady but secondary to enterprise, consistent with management's strategy to focus primarily on enterprise and defense. The company's total addressable retail market, first-person view hobbyists, is small, relatively mature at about $100M, the analyst pointed out.
"Notably, several retail competitors may ultimately become UMAC component customers as Chinese imports are phased out," Sine wrote.
Litchfield maintained its 2026 revenue forecast of $21.1M for Unusual Machines and still expects the company to break even in terms of free cash flow by Q4/26.
Unusual Machines' Q2/25 gross margin increased 1,000 basis points year over year to 37.4%, and Litchfield attributed this to more sales of in-house parts, a growing enterprise division and disciplined pricing.
"Management's 50% margin target looks achievable as enterprise becomes the dominant revenue driver," Sine wrote.
Including the one-time financing costs paid during the quarter, the company reported a net loss of $6.9M. Without that expense, the net loss would have been $800,000. Litchfield expects a similar outcome in Q3/25 because Unusual Machines raised more capital during the quarter. The two equity offerings generated about $84M in cash.
Interest income from this capital should offset operating losses, fund near-term cash burn and allow for Unusual Machines' manufacturing ramp-up and potentially even acquisitions. To maximize returns from this capital as it sits, management is working on an updated financial strategy, to exclude cryptocurrencies.
"Execution in deploying this capital into value-accretive initiatives is the next key milestone," wrote Sine.
Focus on Domestic Supply Chain
Unusual Machines is expanding its U.S.-based production, aiming to have it completed before the U.S. ban on Chinese drone products takes effect in January 2026. With respect to UMAC's new 17,000-square-foot motor production facility in Orlando, Fla., commercial runs are to start there in September and steady state maximum output is expected to be achieved by the start of next year.
As for manufacturing of Unusual Machines' Fat Shark headset products, it will be brought back to the U.S. from China.
"This both strengthens U.S. supply chain independence and positions UMAC as the preferred domestic supplier in a constrained market," Sine wrote.
PBAS Could Be Major Catalyst
The most significant potential near-term catalyst for Unusual Machines, wrote Sine, is the U.S. Pentagon's Purpose-Built Attritable Systems (PBAS), an initiative calling for procurement of about 10,000 low-cost drones per month, designed to be expendable and replaced continually. Each drone needs one controller, costing $58, and four to five motors, each at $50, equaling $250 per drone. For Unusual Machines, PBAS represents about a $30M-plus annual total addressable market for only two components.
The Pentagon has selected 12 vendors and will pare it down to four. The final decision is set for September but more likely to happen closer to year-end, noted Sine.
Unusual Machines would be a critical supplier to the awarded vendors, Sine explained. The boost in business the company gets as a result of PBAS could be anywhere from modest to material. In a bullish scenario, potential 2026 revenue would be well above Litchfield's current $21M projection.
"The current environment is best characterized as 'Christmas Eve' for both management and investors; the groundwork is in place, and we are simply awaiting the arrival of what could be transformational contracts," Sine wrote.
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