Red Cat Holdings secures SSRT2, What Now?

Is it time to sell?

RECAP:

• Red Cat Holdings (RCAT), a small American defense company secured the U.S. Army’s Short Range Reconnaissance Tranche 2 (SRR T2) Program contract

• Primarily develops and produces drones for military applications

For a more in-depth analysis of Red Cat as a company, read my previous articles on the subject, which I’ve linked below.

Since my last article, RCAT:

• Secured the SSR T2 contract

  • approx. $79 million per year valuation

  • 5-year duration

• Announced increased partnership with Palladyne AI

• Promoted Geoffrey Hitchcock to Senior Revenue Officer

The SSR T2 contract is massive for RCAT, considering that the contract alone will bring over 4 times the revenue the entire company made in 2023. The biggest risk point has already been reached, as Red Cat is essentially pre-revenue without the contract. While they do have other products, a significant amount of the value the company possessed before officially winning the contract was rooted in the potential they had to win it.

With the current state of the markets, AI projects are popular among investors so the announcement with Palladyne is positive. While some recent AI announcements bring questionable usefulness, this isn’t the case for a drone company like RCAT. Because the purpose of drones is to engage in swarm warfare, the development of a competent AI system would be huge. AI projects are especially popular with retail investors (specifically anyone who thinks Wall Street Bets is a goldmine of investing advice) who see the massive gains in NVIDIA and want a piece. While this buying strategy may not be the most intelligent, in this case, it will work for us.

For the Senior Revenue Officer promotion, I don’t have good enough information about Geoffrey Hitchcock to take a position on the move of the company. What I can say is that he is coming from Teal, one of Red Cat’s subsidiaries and the producer of the system that won the SRR T2.

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Winning the SSR T2 contract also opens up opportunities for RCAT, with the potential for opening up sales to NATO allies, other letter agencies, and other branches of the military. Importantly, the contract alone is so large even if this doesn't happen, RCAT is still in good shape.

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With current information, RCAT is set up to perform well for the next year, so waiting for long-term capital tax isn’t an irrational move. This also gives time for international buyers to observe the drone systems and potentially strike deals themselves.