Electro Optic Systems Holdings Ltd (ASX: EOS) shares are soaring 6.30% during Monday's trading session, continuing their impressive performance this year. The defence and space company's stock has been on a tear, with a year-to-date increase of 275%, turning a $10,000 investment at the start of the year into $37,500.

The surge comes on the heels of better-than-expected half-year results. Despite a 61% year-over-year revenue decline to $44.1 million, the company's performance exceeded expectations with a gross margin of 75%. The results signify a successful turnaround for Electro Optic Systems, with debt paid down and contract assets unwound. The company's Defence segment saw a decline, but this was partially offset by a 29% year-over-year increase in Space revenues.

Looking ahead, Electro Optic Systems boasts a substantial contract backlog of $307 million as of August 22, 2025. The company has also hinted at potential high-value contracts, including "more than 1 HELW 100kW+ opportunity, each >$500m". This positive outlook has prompted broker Bell Potter to maintain a buy rating on the stock, raising its price target to $5.70 from $5.00, implying a potential 16% upside. The broker views Electro Optic Systems as well-positioned to capitalize on increasing global defence budgets, particularly in counter-drone technology.