Kratos Defense & Security Solutions: A High-Flying Drone Stock Faces Valuation Concerns

Kratos Defense & Security Solutions (KTOS) has emerged as a standout performer in the drone sector, with shares soaring 229% year-to-date as of October 20, 2025. The company's Q2 earnings revealed 17% year-over-year revenue growth, fueled by major defense contracts including a $175 million U.S. Navy radar upgrade and a $1.45 billion hypersonic weapons development deal.

Beneath the surface momentum, concerning metrics emerge. The $14 billion market cap company reported just $16 million net income in 2024, with trailing earnings multiples approaching 900x. First-half 2025 profits declined 20% year-over-year to $7.4 million, raising questions about its ability to grow into its premium valuation.

While growth stocks often command rich multiples, Kratos' minimal profitability and contracting margins suggest investors may want to wait for either improved fundamentals or a more reasonable entry point. The defense contractor's technology pipeline shows promise, but current pricing appears to discount years of flawless execution.