Kratos Defense & Security Solutions, Inc.
Orin's own judgment of how firmly the evidence points one way — not the chance the price goes up.
Kratos continues to deliver accelerating top-line growth — Q2 2026 revenue rose 30.5% YoY to $458.8M and the company has beaten consensus EPS estimates for eight consecutive quarters, most recently by 51.3% — but revenue scale is not translating into durable profitability or cash generation.
FY2025 gross margin compressed to 22.2% from 25.3% in FY2024, Q2 2026 operating income was negative at -$1.6M, and FY2025 free cash flow was -$137.4M with capex stepping up to $95.3M. At 235x trailing earnings and a P/S of 4.98 versus a peer median of 3.09, the stock remains richly valued even after a ~40% decline from its 200-day moving average of $67.20, and persistent insider selling — 416 dispositions versus 2 acquisitions over 24 months — offers no signal that management sees undervaluation.
What could go wrong
- Margin compression persists. FY2025 gross margin fell to 22.2% from 25.3% in FY2024 while Q2 2026 operating income turned negative at -$1.6M despite 30.5% revenue growth, suggesting mix or cost headwinds are eroding the incremental economics.
- Cash burn escalation. FY2025 free cash flow was -$137.4M versus -$8.5M in FY2024 as capex rose to $95.3M; sustained negative FCF pressures the balance sheet and limits buyback or deleveraging optionality.
- Valuation premium to peers. At 235x PE and 4.98x P/S versus peer medians of -20.9x and 3.09x respectively, any disappointment in growth or margin trajectory could trigger further de-rating.
- Persistent insider selling. Over the trailing 24 months insiders net sold 2.27M shares for $153.5M across 416 dispositions with only 2 acquisitions; recent September 2026 sales by the CFO and division presidents continue the pattern.
What would change my mind
Where this comes from: Q2 FY26 results · earnings vs estimates, 4 Aug · FY24 and FY25 fundamentals · FY25 fundamentals. Orin's read on KTOS; not advice.
How has the share price moved?
Down 54.4% over twelve months, from $90.68 on 27 Oct 2025 to $41.32 at the Tue 27 Oct 2026 close. Its highest close in that time was $130.72 on 16 Jan 2026; the last close is 68.4% below it.
- Green line: the closing price each trading day.
- Grey line: the average closing price over the last 50 trading days.
- Dashed amber line: the same over the last 200 trading days — a slower, smoother line.
- Bars along the bottom: shares traded each day — green when it closed higher than the day before, rose when lower (the most, 28.2M, on 26 Jun 2026).
- Flags: the company's filings, on the day they were made (a 10-Q is the quarterly report and a 10-K the annual report; an 8-K reports a major event).
- Rose flags: large share sales by the company's own officers and directors, from the Form 4 each one files after trading.
On file
All KTOS filingsLargest holders · 13F Q2 2026
Money flow| Filer | Position | Of fund |
|---|---|---|
| BlackRock | $1.2B | 0.0% |
| State Street | $451.9M | 0.0% |
| Vanguard Capital Management | $421.3M | 0.0% |
| Vanguard Portfolio Management | $398.2M | 0.0% |
| Invesco | $203.7M | 0.0% |
| Geode Capital Management | $185.1M | 0.0% |
| AllianceBernstein | $157.3M | 0.1% |
| Nomura Asset Management International | $129.6M | 0.2% |
| Wellington Management Group | $112.2M | 0.0% |
| Morgan Stanley | $110.2M | 0.0% |
82 of the 815 filers we track · quarter ended Q2 2026 · positions, not flows
Insiders, last 24 months: 936 Form 4 filings; open-market trades net −$153.0M. Of the 50 on hand, 0 were open-market purchases and 50 sales — the rest are grants, option exercises and tax withholding.
Ask Orin about KTOS
Orin answers questions about KTOS from its filings, transcripts and numbers — with the source behind every claim. Your own desk starts with 3 free days, card required.
Start 3 free days →How is it priced, against its own past and its sector?
Priced at 276× its last 12 months of profit (Thu 5 Nov close) — below its usual level (419×); the typical Industrials company on the NASDAQ is at 18.4×.
| Measure | Now | Its usual | Sector |
|---|---|---|---|
| P/E | 276×below usual | 419× | 18.4× |
| P/S | 3.81× | — | — |
| EV/EBITDA | 58.7×above usual | 41.7× | — |
| P/B | 1.8×below usual | 2.7× | — |
- P/S: no usual level — it ran from 1.46× to 9.91× over its last 5 fiscal years, so a middle value says little.
- "Its usual" is the middle of its own last 5 fiscal years.
P/E: the share price divided by one year of profit per share — roughly how many years of today's profit the price pays for. A company that loses money has no P/E.
P/S: the company's total market value divided by one year of revenue. Used when there is no profit to measure.
EV/EBITDA: the price of the whole company (its shares plus its debt, minus its cash) divided by one year of operating profit before interest, tax and write-downs.
P/B: the share price divided by the book value per share — what the company owns minus what it owes, as its accounts record it. When book value is tiny, P/B swings wildly and says little.
What do the analysts who cover it publish?
The analysts' average 12-month price target is $87.82 (from $50 to $135) — 113% above the Tue 27 Oct close price. That is their published opinion, not Orin's.
$87.82
$50 – $135 · +113% against the last close
- 17 buy or overweight
- 1 hold
- 0 underweight or sell
Price target: the share price an analyst publishes for about 12 months ahead. It is the opinion of the firm that wrote it; the average is across the firms that cover the company.
Overweight / underweight: analysts' rating words: overweight means the firm expects the stock to do better than the others it covers, underweight worse. Their words, not Orin's.
How is it priced next to the companies it is compared to?
Priced at 276× its last 12 months of profit. Only 1 of the 3 companies it is compared to made a profit (DRS 30.0×), so there is no typical P/E.
| Company | Market value | P/E | EV/EBITDA | Gross margin | Net margin | ROE |
|---|---|---|---|---|---|---|
| KTOSKratos Defense & Security Solutions, Inc. | $6B | 276× | 58.7× | 22.1% | 1.3% | 1% |
| AVAVAeroVironment, Inc. | $6B | lost money | — | 26.5% | −14.5% | −7% |
| DRSLeonardo DRS, Inc. | $10B | 30.0× | 19.4× | 24.9% | 8.5% | 12% |
| MRCYMercury Systems, Inc. | $5B | lost money | 66.6× | 26.7% | −3.0% | −2% |
- AVAV, MRCY: lost money over the last 12 months, so no P/E.
- The list of companies is the data vendor's choice, so it can include a company a person would not have picked.
Market value: the share price times the number of shares — what the whole company is priced at.
P/E: the share price divided by one year of profit per share — roughly how many years of today's profit the price pays for. A company that loses money has no P/E.
EV/EBITDA: the price of the whole company (its shares plus its debt, minus its cash) divided by one year of operating profit before interest, tax and write-downs.
Gross margin: the share of each $1 of sales left after the direct cost of making what was sold.
Net margin: the share of each $1 of sales kept as profit after every cost. Below zero, the company lost money.
ROE: return on equity: one year of profit as a share of the shareholders' money in the business (its book value).
Is it priced high or low compared with its own past?
Priced at 276× its last 12 months of profit (Thu 5 Nov close). It has no full fiscal year on file since its history starts, so there is nothing of its own to compare with.
- Now276×
P/E: the share price divided by one year of profit per share — roughly how many years of today's profit the price pays for. A company that loses money has no P/E.
Fiscal year (FY): the company's own 12-month accounting year, which need not match the calendar year.
How has its sector been priced?
Industrials companies on the NASDAQ were priced at a typical 18.4× their yearly profit (Tue 27 Oct close).
- Now18.4×
- Each year is the middle of that calendar year's daily sector P/E; "Now" is the Tue 27 Oct close figure, the same one in the table above.
Sector P/E: the middle P/E of the companies in the same sector on the same stock exchange, as the data vendor works it out each day.
What does a cash-flow model say a share is worth?
It spends more cash than it brings in, so a cash-flow model gives no usable value (both versions come out below zero).
Discounted cash flow: a model's estimate of what the company is worth today, from the cash it is forecast to make in future years. Small changes in the forecast move it a lot, and it says little about a company that loses money.