This article looks at the 8 Best Small-Cap Defense Stocks to Buy Right Now.
The NYSE Arca Defense Index is up 31.24% year-to-date, as of the close on November 17, comfortably surpassing the S&P 500’s returns of 13.70% during the period. Astronics, a small-cap firm, topped the index, soaring over 200% this year, with several leading drone-makers also making significant gains.
Small- and mid-cap defense stocks have surged in 2025 amid rising demand for AI-powered drones and unmanned vehicles which provide a bird’s eye view during intelligence, combat, reconnaissance, and surveillance operations, and can strike targets with pinpoint accuracy. Moreover, these are also cheaper to deploy and reduce dependence on ground forces in high-risk missions.
According to a report by TD Cowen in September, the Department of War’s 2026 budget request for drones and counter-drones was 53% higher than the actual spend in fiscal 2024, and 78% more than the funding in fiscal 2025.
Seaport Research Partners analyst Richard Safran does not see the shift towards adaptable systems as a surprise, given the U.S. government’s signaling and spending in recent times. He was quoted as saying the following by Reuters in September:
“These trends are predictable because you need to pay attention to what the government is saying — and more importantly, follow the money.”
Jonathan Siegmann, the Research Managing Director at Stifel, expects companies that invest in cost-friendly, upgradeable, technology-backed combat systems to gain from the changing trends.
Considering these factors, there has been an uptick in traditional defense contractors adapting to the modern battlefield by expanding their capabilities through mergers and acquisitions of smaller firms, especially in the areas of artificial intelligence, communications, and cybersecurity.
With that said, let’s now shift focus to the best small-cap defense stocks to invest in.
Our Methodology
We used screeners to identify U.S.-based small-cap stocks in the aerospace and defense industry. From there, we narrowed the list to only those companies that were pure-play defense stocks, had received past defense contracts, or were currently working on defense contracts. Lastly, we selected the top 8 stocks with the highest average share price upside potential as of the close of business on November 14, and ranked them in ascending order of their upside. Additionally, we also included data on hedge fund holdings in these companies as of Q2 2025 to provide further insight into investor interest.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 427.7% since May 2014, beating its benchmark by 264 percentage points (see more details here).
8 Best Small-Cap Defense Stocks to Buy Right Now
8. Cadre Holdings, Inc. (NYSE:CDRE)
Share Price Upside Potential: 12.90%
Number of Hedge Fund Holders: 19
Cadre Holdings, Inc. (NYSE:CDRE) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now, with an upside potential of 12.90% as of the close of business on November 14.
On November 6, B. Riley lifted its price target on the stock to $62 from $50 while maintaining a Buy rating. The adjustment followed the company’s third-quarter earnings beat. In a research note to investors, the firm said Cadre was on track for continued growth, amid robust demand across public safety and nuclear end markets.
In Q3, Cadre Holdings, Inc. (NYSE:CDRE)’s net sales surged 42.5% year-over-year to $155.9 million, with the gain attributed to strong demand for armor and duty gear products and recent acquisitions. Gross profit margin improved from 36.6% in the prior year’s quarter to 42.7%.
Net income stood at $10.9 million for the three months, up from $3.7 million in Q3 2024, driven by improved gross profit. Diluted EPS stood at $0.27, up from $0.09 during the same period last year. EPS beat estimates by one cent.
The company reaffirmed its full-year outlook for 2025. Net sales are expected in the range of $624 million to $630 million, with adjusted EBITDA between $112 million and $116 million. The company did not provide guidance for net income, citing challenges in projecting certain metrics.
During the earnings call, Cadre’s management cited current national defense initiatives, rising spending worldwide, and an increase in global safety threats as tailwinds that could drive sustainable growth for the company over the long run.
Cadre Holdings, Inc. (NYSE:CDRE) manufactures and distributes safety equipment for law enforcement, military, and nuclear markets. The stock has had impressive returns in 2025, gaining 33% year-to-date.
7. Ducommun Incorporated (NYSE:DCO)
Share Price Upside Potential: 18.20%
Number of Hedge Fund Holders: 20
Ducommun Incorporated (NYSE:DCO) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. On November 6, the company reported its third-quarter fiscal 2025 financial results.
Net revenue was reported at $212.6 million, a new quarterly record and up 6% year-over-year, attributed to a strong show by the company’s defense business. This was the third successive quarter of double-digit growth for the segment, driven primarily by its missile franchise.
Gross margin stood at 26.6%, improving by 40 bps from last year. Adjusted EBITDA was posted at $34.4 million, increasing 40 bps year-over-year, and marking the third back-to-back quarter of exceeding the $30 million figure. This represented 16.2% of revenue, putting the company on track to achieve its financial goal of 18% adjusted EBITDA by 2027.
Ducommun Incorporated (NYSE:DCO) reported a net loss of $64.4 million, compared to net income of $10.1 million in the prior year’s quarter. This was the result of a litigation settlement and associated costs. However, adjusted net income stood at $15.2 million, or $0.99 per diluted share, surpassing estimates by four cents.
Chairman, President, and CEO Stephen G. Oswald highlighted weakness in commercial aerospace and described ongoing destocking as a major headwind. However, he welcomed the Federal Aviation Administration (FAA)’s decision to approve an increase in Boeing’s monthly 737 production cap, which could help in reducing inventory in the system.
The company reaffirmed its full-year 2025 guidance and brushed aside concerns that tariffs could impact financial results, since about 95% of its revenue is generated domestically in the United States.
The stock has had an impressive run in 2025, gaining 43.53% year-to-date, as of the close on November 14.
Ducommun Incorporated (NYSE:DCO) provides manufacturing solutions to customers in the global aerospace, defense, military, space, and industrial markets.
6. Astronics Corporation (NASDAQ:ATRO)
Share Price Upside Potential: 18.89%
Number of Hedge Fund Holders: 37
Astronics Corporation (NASDAQ:ATRO) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. On November 5, Truist Financial analyst Michael Ciarmoli reiterated a Buy rating on the stock with a share price target of $58.
The reaffirmation builds on an earlier adjustment by the firm on October 15, when it lifted the price target on the stock to $58 from $49 and maintained a Buy rating on its shares, as part of broader analysis before third quarter results in the Aerospace and Defense industry, in which Truist noted an uptick in aftermarket demand trends and said it was favoring companies that supply to the 737 MAX program.
Truist’s latest update followed Astronics Corporation’s (NASDAQ:ATRO) third-quarter earnings report, in which it reported a 3.8% increase in revenue to $211.4 million, led by robust demand across the company’s product lines, and most notably an 8.5% sales growth in the Aerospace segment.
Gross profit represented 30.5% of sales during the quarter, an improvement from 27.1% in the prior year’s period due to increased volume, effective production, and specific pricing actions. Stronger profitability helped the company improve diluted EPS by 44% year over year to $0.49, beating estimates by 7 cents.
Chairman, President, and CEO Peter Gundermann anticipates a strong end to the year, with fourth-quarter sales expected between $225 million and $235 million, which would help the company reach its record annual sales in the range of $847 million to $857 million.
The stock has soared in 2025, gaining over 220% year-to-date as of November 14.
Astronics Corporation (NASDAQ:ATRO) provides advanced technologies to global aerospace, defense, and electronics clients.
5. V2X, Inc. (NYSE:VVX)
Share Price Upside Potential: 22.51%
Number of Hedge Fund Holders: 27
V2X, Inc. (NYSE:VVX) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. On November 13, Noble Financial analyst Joe Gomes reiterated a Buy rating on the stock with a share price target of $72.
The adjustment follows the company’s third-quarter earnings results on November 3, in which it reported record revenue and comfortably beat earnings estimates. Noble’s price target reflects an upside potential of 33% from the stock’s closing price on November 14.
This note follows post-earnings revision notes from Truist and Stifel earlier in the month, which saw both firms maintain a Buy rating on V2X, Inc. (NYSE:VVX), while raising their price targets to $65 each, up from $58 and $63, respectively.
The company reported revenue of $1.17 billion, up 8% from the prior year. The management credited the growth to the Warfighter-Training Readiness Solutions, Iraq F-16, and F-5 programs. Adjusted EBITDA stood at $85.2 million, with a margin of 7.3%. Adjusted diluted EPS was at $1.37, up 6% year-over-year, and beating estimates by 14 cents.
V2X, Inc. (NYSE:VVX) received $1.4 billion in net bookings during the quarter. It ended the period with a total backlog of $11.6 billion, exclusive of the $4 billion under-protest T-6 contract. Moreover, the company stated that the government shutdown’s impact on these awards was modest.
However, management lowered its full-year adjusted operating cash flow guidance to account for likely delays from the shutdown, while raising the midpoints of its outlook on revenue, adjusted EBITDA, and adjusted diluted EPS.
V2X, Inc. (NYSE:VVX) is a leading provider of critical mission solutions and support services to defense clients across 47 countries and territories.
4. Red Cat Holdings, Inc. (NASDAQ:RCAT)
Share Price Upside Potential: 109.50%
Number of Hedge Fund Holders: 8
Red Cat Holdings, Inc. (NASDAQ:RCAT) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. On November 14, Needham analyst Austin Bohlig lowered his price target on the stock to $12 from $17.
In a research note to investors, the analyst highlighted the company’s strong third-quarter results for fiscal 2025, while noting that the revised revenue guidance for the full year was well short of analysts’ estimates. The company’s guidance revision was attributed to the delay in the launch of a new product and the government shutdown.
However, Needham maintained its Buy rating for Red Cat Holdings, Inc. (NASDAQ:RCAT). The firm believes the Short Range Reconnaissance Tranche 2 (SRR T2) program remains a significant opportunity for the company, despite the contract likely being delayed until Q1 of 2026.
RCAT’s shares have plunged nearly 48% year-to-date, which Bohlig believes presents a buying opportunity for investors, as he anticipates the beginning of a promising spell for the company, given prospects in the USV market and the SRR T2 program.
Red Cat Holdings, Inc. (NASDAQ:RCAT)’s quarterly revenue surged 646% from the prior year’s period to $9.6 million during the third quarter. Its diluted loss per share remained at $0.16, unchanged year over year. The company ended the quarter with $212.5 million in cash and receivables.
For the fourth quarter, the company has projected revenue of $20 million to $23 million. If executed, this quarterly revenue will even exceed the company’s highest 12-month revenue.
Red Cat Holdings, Inc. (NASDAQ:RCAT) provides services and solutions for the drone industry.
3. Voyager Technologies, Inc. (NYSE:VOYG)
Share Price Upside Potential: 118.42%
Number of Hedge Fund Holders: 34
Voyager Technologies, Inc. (NYSE:VOYG) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. However, on November 6, Keybanc slashed its price target for the stock to $45 from $50, citing ‘conservatism surrounding a prolonged government shutdown.’
However, the firm maintained its Overweight rating on the stock and noted that the company was on track to gain from rapid growth in the defense and space markets through potential contract awards and the advancement of Starlab development.
Keybanc’s adjustment followed the company’s third-quarter fiscal 2025 earnings call on November 3. The firm said it was keeping its earlier estimates. Despite the cut, the revised price target represents 126% upside from the November 14 closing price of $19.87.
Voyager Technologies, Inc. (NYSE:VOYG)’s shares have slumped by more than 40% over the past month, and the decline has continued following the earnings call. The company reported revenue of $39.6 million, which largely remained flat year-over-year. Adjusted EPS was a loss of $0.22, but improved from a loss per share of $1.56 in the prior year’s quarter.
While Defense and National Security revenue grew 31% year-over-year, the top line for Space Solutions was down nearly 41%, driven by a wind-down of a multi-year contract with NASA. During the earnings call, the management acknowledged that the government shutdown could delay certain contracts and projects.
Voyager Technologies Inc. (NYSE:VOYG) is a defense technology and space solutions company that is committed to advancing and delivering transformative, mission-critical solutions.
2. Redwire Corporation (NYSE:RDW)
Share Price Upside Potential: 158.78%
Number of Hedge Fund Holders: 22
Redwire Corporation (NYSE:RDW) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. However, on November 12, Canaccord Genuity cut its price target on the stock to $11 from $17.50, while maintaining a Buy rating.
The firm highlighted Redwire’s third-quarter results, announced on November 5, that missed estimates for both revenue and profit. The company also lowered its full-year 2025 revenue guidance to $320 million to $340 million, citing delayed orders due to the government shutdown. The analyst notes that the revised guidance is a 42% decrease from the outlook shared six months ago.
While the company’s revenue soared 50.7% to $103.4 million, its net loss increased by $20.2 million, and adjusted EBITDA decreased by $5 million in the quarter, with adverse Estimate at Completion (EAC) costs impacting results.
Canaccord’s adjustment follows recent updates from Truist Securities and Cantor Fitzgerald after the earnings call, which saw both firms slash their price targets on Redwire Corporation (NYSE:RDW) while keeping their Hold and Overweight ratings, respectively.
Despite a difficult year, which has seen its shares plunge 67% year-to-date, Wall Street analysts maintain a consensus Buy rating for the stock, with a one-year median share price target of $14, representing a 158.78% upside potential as of the close on November 14.
Redwire Corporation (NYSE:RDW) is a global space and defense technology company that provides critical space infrastructure and advanced technologies for government and commercial users.
1. AIRO Group Holdings, Inc. (NASDAQ:AIRO)
Share Price Upside Potential: 203.66%
Number of Hedge Fund Holders: 7
AIRO Group Holdings, Inc. (NASDAQ:AIRO) is among the 8 Best Small-Cap Defense Stocks to Buy Right Now. On November 14, the company announced that its subsidiary, AIRO Drone, and Nord-Drone LLC’s affiliate firm, Nord Drone Group (NDG), had reached an agreement to establish a joint venture, AIRO Nord-Drone LLC.
The new business will help increase the production and supply of drones to support the defense requirements of the United States, Ukraine, and NATO, through the integration of AIRO’s aerospace capabilities and NDG’s expertise in operationally proven technologies, such as loitering munitions, first-person view (FPV) drones, and multi-purpose combat drones.
Dr. Chirinjeev Kathuria, Executive Chairman of AIRO Group Holdings, Inc. (NASDAQ:AIRO) stated the following on the AIRO Nord-Drone venture:
“This joint venture represents a significant milestone in delivering proven, battlefield-tested technology to our allies when it matters most. Together with Nord Drone Group, we are creating a transatlantic defense platform capable of scaling rapidly to meet urgent operational requirements.”
In other news, AIRO Group Holdings, Inc. (NASDAQ:AIRO)’s shares plummeted on Friday following the company’s third-quarter earnings call, in which it reported a sharp year-over-year decline in revenue, down by more than 73%, attributed to around $20 million worth of drone shipments being delayed until the fourth quarter.
However, the company stated that it had already booked $24.5 million in fourth-quarter revenue, putting it on track to end the year on a strong note. The management further added that it anticipates full-year revenue in 2025 to surpass the top-line figure for 2024.
Following the results, Mizuho lowered its price target for the stock to $25 from $31 on November 17, while maintaining an Outperform rating, citing a promising long-term outlook for the shares.
While the stock is down 20% year-to-date, Wall Street analysts maintain a positive outlook for its shares with a consensus Buy rating and an average upside potential of over 200% as of the close on November 14.
AIRO Group Holdings Inc. (NASDAQ:AIRO) is a multi-faceted aerospace and defense company.
While we acknowledge the potential of AIRO to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than AIRO and that has 100x upside potential, check out our report about the cheapest AI stock.
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