It seems like a good time to buy up some drone stocks. Drones have been becoming more and more useful these days, though perhaps the most world-altering use case recently has been in warfare. Even if you don’t keep up with the news, it is very likely that you have heard of drones multiple times in just the past year alone.

These unmanned aerial vehicles (UAVs) have changed how wars are fought, and they are going to become even more important as the West has lagged behind in mass-producing drones. As the U.S. and its allies catch up, the surge in drone-related spending could send many drone startups soaring. In my opinion, this is a prime opportunity to get in on the ground floor.

Drones are not just limited to military applications. They are also useful for policing and will likely be used for package deliveries in the future. With such a wide range of potential use cases, having a stake in some of these drone stocks before the windfall is a good idea.

Here are three drone stocks to look at as you plan to buy and hold.

DroneShield (DRSHF)

DroneShield (OTCMKTS:DRSHF) is specializing in counter-drone technology. The stock is off to an exceptional start in the year 2024. It is up 266% in the past year and over 142% year-to-date. Even then, I think there is more upside potential here due to the sheer amount of money defense departments worldwide could throw at them. Q1 revenue skyrocketed to $16.4 million, which is about 10 times the revenue in Q1 of the previous year.

What really caught my eye was that their recurring software revenue from subscriptions, or SaaS revenues, doubled to $561,000. This shows that customers increasingly require DroneShield’s cutting-edge artificial intelligence software solutions to address the rapidly changing drone security situation. With approximately $38 million in cash reserves, no long-term debt obligations and a substantial $27 million in pre-ordered work in their backlog, DroneShield is well set up for continued growth.

I think DroneShield could secure significant contracts under the NATO agreement framework in the coming years. That’s the catalyst I’m banking on.

Unusual Machines (UMAC)

Unusual Machines (NYSEMKT:UMAC) is a company that manufactures drones and drone parts. The stock is very volatile since it does not have a long history. It recently completed its initial public offering on the stock market. This allowed Unusual Machines to raise funds to purchase two other drone-related businesses, Rotor Riot and Fat Shark. In just the first 45 days of owning these new companies, they generated $619,000 in combined sales, with a healthy profit margin of 30%.

I’m encouraged by the consistent growth Rotor Riot has shown in recent years through its online storefront. Its e-commerce sales have increased 20%-30% each year. However, the real potential for growth lies in Unusual Machines’ plans to expand into serving the needs of our military and defense agencies. With the U.S. military wanting to purchase more drones from non-Chinese companies, Unusual Machines’ expertise puts them in a strong position to win important contracts from the government. Management expects to have their first drone controller ready by June, which meets all government standards.

While taking the company public and acquiring the two businesses impacted short-term finances, Unusual Machines still has $3.2 million in reserve to fund future expansion. Entering the defense sector presents big opportunities but also comes with some uncertainty. However, if management continues to grow online sales and successfully secure military contracts, Unusual Machines could be poised for a promising future of solid revenue and profits.

Red Cat Holdings (RCAT)

Red Cat Holdings (NASDAQ:RCAT) is another drone company that specializes in recon. It reported outstanding results for its Q3 FY2024 that once more surpassed its forecast guidance. It posted 250.6% YOY revenue growth for Q3. This put sales at $5.85 million in the recently reported quarter. A big star of their show is the Teal 2 drone, which is gaining significant popularity with the Department of Defense and many NATO countries.

What excites me the most is Red Cat’s strategic software partnerships that could dramatically boost their gross profit margins. Red Cat is positioning itself to achieve profit margins of 65% or higher. If customers opt to add multiple complementary software options, margins could even approach 85%.

While organic expansion remains the foundation of its success, Red Cat is also pursuing lucrative prospects, such as the SRR program of record. However, even without securing these larger contracts, I believe they have a clear path to reaching operational breakeven as they continue gaining market share in the small unmanned defense sector. Full-year revenue growth is also expected in the high 80s, and the same is expected next year.

I see juicy upside, and so do most analysts who cover this stock.

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On the date of publication, Omor Ibne Ehsan did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.