Why Did Kratos Defense Stock Drop Today?
Key Points
Kratos Defense will help build the ground stations for Sky Perfect JSAT Corporation's new communications system.
The project is currently only at the initial validation stage -- not far advanced.
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Kratos Defense & Security (NASDAQ: KTOS) stock fell 5.5% through 11 a.m. ET Tuesday on what should probably have been considered good news.
Sky Perfect JSAT Corporation picked Kratos to develop the ground system for its new 5G Non-Terrestrial Network (NTN) over the Asia-Pacific region.
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What is Sky Perfect's NTN?
Sky Perfect describes its NSN as essentially a satellite communications system, although it will also use long-endurance high-altitude platforms (HAP, such as drones and blimps) to supplement connectivity. Kratos's role in this project will be to provide the software for ground systems that allow nodes on Earth to communicate with the satellites and HAPS.
It's important to note, though, that at this point the project is just focused on proving "initial validation and interoperability," as Sky Perfect's General Manager, Mr. Yuma Minowa, points out. We're really in the research and development phase of NSN, and it's not yet close to commercial viability.
What it means for Kratos stock
Valuing the revenue stream that Sky Perfect's NSN might produce is therefore an exercise in guesswork at this time. It makes sense that the project's financial details aren't yet being made public. Still, it's worth highlighting: Kratos's press release had no details on how much it might be paid for its work on NSN.
That makes it difficult to say how important the news is for Kratos. What does seem clear is that, at this point, the NSN doesn't look like a big enough deal to move the needle for Kratos -- or to make the stock's 650-times earnings price-to-earnings ratio look any less expensive.
So why is Kratos stock down on potentially good news today? Simple overvaluation is my guess.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions. The Motley Fool has a disclosure policy.
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