Why Kratos Defense Stock Just Skyrocketed—And What It Means for Investors

Defense stocks are having a moment—and Kratos just stole the spotlight. Here’s why traders are piling in.

The Catalyst: Big Contracts or Big Hype?

Rumors swirl around Pentagon deals or speculative short squeezes. Either way, the market’s buying first and asking questions later.

Sector-Wide Tailwinds

Geopolitical tensions + defense budget bumps = sector euphoria. Kratos rides the wave—but can it outlast the momentum crowd?

Cynical Finance Jab:
Another day, another stock pumped on ‘strategic positioning’ buzzwords. At least the charts look pretty.

Bottom Line:
This isn’t a drill—volatility’s here. Trade accordingly.

Image source: Getty Images.

Kratos Defense Q2 earnings

Kratos' sales grew 17% in Q2, 15% of which was organic growth, a tremendous accomplishment -- although management said its book-to-bill ratio in Q2 was only 0.7, so business could be slowing down.

Not all the news was good, however. On profits, it's worth noting that the $0.11 profit Kratos earned was a non-GAAP (adjusted) number, and that actual earnings as calculated according to generally accepted accounting principles (GAAP) amounted to only $0.02 per share -- down 60% year over year.

Free cash FLOW in the quarter also ran negative, with Kratos burning through $31.1 million in Q2.

Is Kratos stock a buy?

As implied by the weak book-to-bill ratio, Kratos guided below analyst estimates for Q3 revenue, just $315 million to $325 million. The Q2 revenue beat, however, more than makes up for that shortfall, and guidance for the full year is slightly ahead of Wall Street forecasts, with Kratos likely to generate sales of roughly $1.3 billion through the end of this year.

The company also expects to be profitable, at least on an operating basis, but also to continue burning cash through year end. Indeed, analysts who follow the company don't expect to see positive free cash Flow before 2027.

Between the negative free cash flow and the lofty valuation -- more than 400 times this year's estimated earnings -- Kratos stock remains a sell for me.