Kratos Defense & Security Solutions Analysis
Defense and security stocks have generally performed well over the past two years as geopolitical unrest continue to create demand for their products and solutions. Kratos has found its way to this multibillion dollar industry and has slowly grown their revenue to the $1 billion mark in 2023. The revenue growth reflects in their stock price, which has grown nearly 60% in the past 12 months.
The company is still trading far below their all time highs, but that’s probably for its own good. When Kratos traded at 34.00 in 2021, it was only generating $811 million annually. That means the cost to own the stock was 50% high at a time it was making 25% less in annual revenue. The correction since then has brought their market cap $3.27 billion, which is clearly attractive enough for buyers to steadily buy up the stock.
Where they can improve going forward is in their profit margins. The company has struggled to post consistent positive net income, hurting their price to earnings ratio. Investors may overlook the tough margins for the short term, but as revenue continue to grow, they’ll start demanding positive net income. Their balance sheet is far, with nearly $2 billion in assets and $600 million in liabilities. That means they already have a positive $1.5 billion true valuation, and their overall stock valuation is $3.27…might be see as something undervalued. Free cash flow is weak, making this a high risk choice for an investor, something to keep a close eye on and perhaps play in cycles of demand.
Technical analysis:
The stock has been riding the same uptrend line since the start of 2023. It recently faced a strong rejection at 23.00, which is the new breakout in focus. The recent earnings weren’t enough to move the needle, but it still held its uptrend following the report.