RCAT

Red Cat is a real revenue story dressed in a dangerous valuation. FY2025 revenue more than doubled to $40.7M (+128%), driven by the U.S. Army SRR drone-delivery program per the MD&A — that part of the bull case is genuine. But the income statement underneath is alarming: gross profit actually FELL 65% to just $1.27M (a 3.1% gross margin, down from 21% a year earlier), meaning cost of goods grew far faster than sales. Management concedes the plant is 'operating below its designed production capacity,' so fixed overhead is crushing per-unit economics. Operating income was -$66.6M (-163.5% margin), net loss nearly tripled to -$72.1M, and operating cash flow was -$89.1M. This is a business scaling unprofitably at the gross line, not just the bottom line.

The one clear positive is the balance sheet — but it was bought, not earned. Equity jumped to $246M and current assets to $227M against just $14.8M of current liabilities, because the company sold roughly $249M of stock in 2025 (registered direct offerings at $6.35, $7.25, and a $172.5M raise at $9.60). That funds the burn for a couple of years and removes near-term solvency risk, which is the only reason this isn't an 'avoid.' The flip side: shares outstanding rose 62% to 121M, accumulated deficit sits at -$197M, and the Risk Factors flag that 'future capital raises may dilute' holders further — likely, given an $89M annual cash burn against a balance sheet largely consisting of that raised cash.