A Microcap Owns the Only Real-Time 3D Sonar on Earth. The Navy Just Started Buying It in Bulk.

The Underwater Monopoly: Part 1 of 3

The most valuable defense technology stories are usually the ones nobody is watching. Coda Octopus is a 32-year-old Florida-based defense contractor with 70+ patents on a sonar technology no competitor can replicate, a brand-new diving system the U.S. Navy just adopted across nine commands, and a balance sheet with more cash than debt. It trades at 3.2x revenue. The market is asleep.

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I. The Setup Nobody Noticed

On January 29, 2026, Coda Octopus Group reported audited fiscal year 2025 results that should have moved the stock 30 percent. Consolidated revenue of $26.6 million, up 30.7 percent year-over-year. Gross margin of 66.5 percent, putting the company in the top decile of all defense technology companies on a margin basis. DAVD-related revenue of approximately $3.7 million, up 208 percent from $1.2 million the prior year. A balance sheet with $26 million in cash and zero debt against a market capitalization of approximately $110 million.

The stock barely moved. Reuters did not pick up the print. Most generalist analysts who cover defense technology missed it entirely because Coda Octopus is too small to appear on standard screens. That obscurity is the entire opportunity. A profitable, growing, defense-essential business with a fortress balance sheet and a defensible patent moat is trading at the same enterprise value to revenue multiple as Symbotic and far below the defense pure-play peer group average. The mispricing is structural, and it will not survive the next four quarters of operating execution.

Chart 1: CODA Consolidated Revenue FY19–FY25. Source: Coda Octopus IR filings, Shawarma Capital. The FY25 print is the first revenue figure above the pre-COVID baseline since the pandemic disrupted the company’s operating model.

The relevant context for that chart: management has been explicitly guiding to a return to pre-COVID revenue levels for several years. The FY25 print is not just a strong result. It is the formal validation that the company has completed its return-to-baseline objective, and it is now operating off a higher base than at any point in its history. Every dollar of revenue from this point forward is an above-historical-peak dollar. That is what an inflection looks like.

II. What Coda Octopus Actually Sells

The company operates two business segments. The first is the Marine Technology business, which sells real-time 3D, 4D, 5D, and 6D imaging sonar systems under the Echoscope brand, plus the new Echoscope PIPE NANO Generation Series, plus the Diver Augmented Vision Display (DAVD) system. The second is the Defense Engineering business, comprising Coda Octopus Martech in the United Kingdom and Coda Octopus Colmek in the United States, which manufacture sub-assemblies and embedded systems for prime defense contractors as a sub-tier supplier.

The Marine Technology business is where the long-term value is. Echoscope is the only commercially available sonar system in the world that produces real-time volumetric 3D, 4D, 5D, and 6D underwater imagery. Every other underwater imaging product, including those from much larger companies like Kongsberg, Teledyne, and Sonardyne, requires post-processing to generate 3D imagery. Echoscope produces the imagery in real time, in zero-visibility water, with sub-centimeter resolution. There is no functional substitute. There is no cheaper alternative. There is no competitor product on the public roadmap that closes the gap.

DAVD is the natural extension of that core technology. It is a fully integrated diving helmet plus topside control system that pipes Echoscope’s real-time 3D sonar imagery directly into a heads-up display embedded in the diver’s helmet. The diver can see, in zero visibility, a live 3D map of their surroundings. The topside operator sees the same imagery simultaneously. The U.S. Navy started evaluating the DAVD prototype in 2018 under a CRADA with the Naval Surface Warfare Center Panama City Division. Eight years later, the system is now operational across nine U.S. Navy commands and the Special Operations Command community has placed orders for 16 untethered DAVD systems

Chart 2: DAVD Revenue Trajectory FY22–FY28E. Source: Coda Octopus filings, Shawarma Capital projections. From $0.2M in FY22 to a projected $28M in FY28 — a 140x ramp on a single product line.

The DAVD ramp is the single most important variable in the CODA thesis. The product currently generates about $3.7 million in annual revenue. If the SOCOM adoption curve continues at the rate suggested by the March 2025 untethered systems order, and if foreign navy adoption begins in FY27 as management has indicated in its commentary, DAVD revenue should reach $8 to $10 million in FY26, $14 to $18 million in FY27, and $24 to $32 million by FY28. That ramp alone, on a $26.6 million baseline, doubles the company’s revenue.

III. The Patent Moat

The reason no competitor has caught up to Echoscope or DAVD in two decades is simple: the underlying patent portfolio is dense, defensible, and continually being extended. Coda Octopus holds more than 70 patents covering volumetric sonar beam-forming algorithms, real-time underwater 3D rendering, sonar-based AR overlay for diving applications, and the integration architecture between sonar hardware and HUD systems.

Chart 3: CODA Patent Portfolio by Category. Source: USPTO filings, Coda Octopus IP disclosures, Shawarma Capital. 70+ patents forming a tightly integrated technology moat.

These patents are not the kind of broad design patents that get challenged and invalidated in IPR proceedings. They are narrow, technical patents on specific signal-processing innovations. A competitor cannot build a real-time 3D sonar system without infringing at least a dozen of them. The natural response, which Kongsberg and Teledyne have both attempted at various points, is to license the technology from Coda Octopus rather than try to design around the patents. That negotiation has not produced a deal, primarily because Coda Octopus has elected to keep the technology exclusively for its own products in the markets where margins are highest.

IV. The Defense Mix Shift

Five years ago, Coda Octopus was roughly 55 percent defense and 45 percent commercial revenue. The commercial business, which served offshore oil and gas, marine construction, and renewable energy customers, had higher revenue volatility tied to commodity cycles and project timing. The defense business, by contrast, was ramping consistently as DAVD and Echoscope adoption built across U.S. Navy programs of record

Chart 4: CODA Defense vs. Commercial Revenue Mix. Source: Coda Octopus filings, Shawarma Capital. Defense concentration has grown from 55% to 78%, with the trend continuing toward 82%+ by FY27.

The mix shift toward defense is a quality-of-revenue improvement that the market has not yet recognized. Defense contracts carry longer time horizons, higher gross margins, lower customer concentration risk per contract, and dramatically reduced commodity exposure. The current mix of approximately 78 percent defense / 22 percent commercial is the highest defense weighting in the company’s history, and management has indicated this trend will continue as DAVD adoption ramps.

Why the mix shift matters for valuation: Defense pure-play companies trade at a meaningful premium to mixed-end-market industrial technology. As CODA’s defense mix crosses 80 percent, the company should re-rate from the industrial technology comp set (currently trading at 2.5 to 3.5x revenue) to the defense pure-play comp set (currently trading at 4 to 6x revenue). That re-rating alone is worth approximately 50 to 80 percent on the share price.

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V. The Macro Tailwind: The Underwater Vehicle Build-Out

The single most important macro tailwind for Coda Octopus is the global build-out of unmanned underwater vehicles, or UUVs. Every major navy on earth is investing in UUV programs as a counter to the growing capability gap with China’s submarine fleet. The U.S. Navy’s Manta Ray, Orca XLUUV, and the Snakehead programs are all in active development. The Royal Australian Navy is acquiring autonomous undersea vehicles under the AUKUS framework. The UK Royal Navy is doing the same. Norway’s Kongsberg is supplying multiple NATO navies. The market for these systems is exploding.

Chart 5: Global UUV Market Size 2024–2030. Source: Industry analyst consensus, defense market research, Shawarma Capital. From $4.8B to $11.1B in six years at a 15% CAGR.

The reason this matters for Coda Octopus is that every UUV needs a sensing payload, and every sensing payload needs an imaging sonar. The market for UUV-mounted imaging sonars is a small fraction of the total UUV market, but it is exactly the market segment where Echoscope’s real-time 3D capability is the only viable solution. Most UUVs operate in environments where post-processed sonar data is useless because the vehicle has already moved past the relevant terrain by the time the imagery is available. Real-time imagery is the only way for an autonomous vehicle to navigate around obstacles, identify mines, and conduct hull inspections without human intervention.

Coda Octopus management has explicitly identified this as the largest addressable market for its technology over the next five to ten years. The company is currently in active integration discussions with multiple UUV program offices both in the U.S. and across NATO allied countries. Even modest market share, on the order of 10 to 15 percent of UUV-mounted imaging sonar spending, would represent $40 to $60 million in incremental annual revenue by 2030.

VI. The Margin Profile That Doesn’t Belong in Defense

Defense companies typically run gross margins between 15 and 30 percent. Coda Octopus runs at 66.5 percent. That is not a defense gross margin profile. That is a software gross margin profile, attached to defense end markets that protect the customer relationship and provide multi-year revenue visibility. The combination is extraordinarily rare and almost always undervalued by the market when it appears in microcap form.

Chart 6: CODA Gross Margin vs. Defense Tech Peers. Source: Bloomberg, company filings, Shawarma Capital. CODA at 66.5% is approximately 2x the defense pure-play average.

The reason Coda Octopus runs at software-like gross margins is that its products are essentially software inside a hardware enclosure. The Echoscope unit costs perhaps $40,000 to manufacture and sells for $250,000 to $500,000 depending on configuration. The DAVD system carries similar economics. The marginal unit cost of producing additional sonars is dominated by the ASIC, the transducer, and the housing, all of which are commodity inputs. The value is in the software stack and the patented signal-processing algorithms. As volumes scale, the gross margin profile actually expands rather than compresses, because the embedded software development costs are fixed and amortize across more units.

VII. The PAL Acquisition: Underappreciated Optionality

On October 29, 2024, Coda Octopus acquired Precision Acoustics Limited (PAL), a UK-based specialist in hydrophone design and non-destructive testing (NDT) calibration. The acquisition was announced as a strategic diversification move and received almost no analyst attention. In FY25, PAL contributed strong revenue and pre-tax profit numbers that triggered the year-one earnout milestones.

PAL is more interesting than its initial coverage suggested. Hydrophones are the underlying acoustic sensor used in essentially every underwater imaging system, including Coda Octopus’s own Echoscope. By owning PAL, the company has secured both a key supply chain dependency and the ability to integrate next-generation hydrophone designs directly into future Echoscope and DAVD revisions. PAL also provides ISO 17025 accreditation for ultrasonic hydrophone calibration through the United Kingdom Accreditation Service, which positions the company as a credentialed test partner for defense and medical ultrasound applications, both of which are large and growing markets.

The PAL strategic logic: Coda Octopus did not buy PAL for its existing revenue. The company bought PAL for vertical integration of the acoustic sensor stack, ISO accreditation that opens medical imaging and defense calibration markets, and a UK-based defense engineering presence that complements Martech. These are the kinds of strategic moves that compound for years and are nearly impossible to value at announcement.

VIII. The Bottom Line

Coda Octopus is a 30-year-old defense technology company with 70+ patents on technology that no competitor has been able to replicate, gross margins twice the defense industry average, a balance sheet with more cash than debt, a customer base that includes the U.S. Navy across nine commands and the Special Operations Command, a brand-new product (DAVD) at the beginning of its adoption curve with foreign navy expansion in front of it, and a $110 million market capitalization that prices essentially none of the long-term optionality.

The setup is exactly the kind of microcap defense technology story that historically delivers 5x to 10x returns over multi-year holding periods when the operational catalysts play out. Coda Octopus has those catalysts in front of it, on a defined timeline, with a defensible technology moat protecting the entire thesis.

The thesis in one paragraph: Coda Octopus owns the only real-time 3D sonar technology that exists, sells it primarily to the U.S. Navy and allied defense customers on multi-year contracts at 66 percent gross margins, generates positive free cash flow with no debt, just returned to above-pre-COVID revenue levels for the first time, has a brand-new product (DAVD) ramping at 200%+ year-over-year, and has the entire NATO unmanned underwater vehicle build-out as the next leg of growth. It trades at a 25 percent discount to the defense pure-play comp set on EV/sales. Buy below $14. Hold for the multi-year ramp.

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I am long $CODA equity. This is research synthesis, not investment advice. You should not buy or sell securities based on anything I write. I am not a registered investment advisor; I do not owe you a fiduciary duty; my conclusions could be wrong in ways I have not anticipated. Financial projections are model outputs based on publicly available data. They are not guarantees. Do your own due diligence.

More in this series

The Underwater Monopoly: The Complete Series

Sold Less, Kept More, and the Navy Said Yes

Seven Triggers. Twelve Months. CODA Wakes Up.

$30 Per Share at Defense Multiples. $50 If DAVD Hits the Number.