Why a $21 Million Bet on a Stock Up 200% Signals Confidence in Defense Spending

California-based StepStone Group disclosed a new position in Karman Holdings (NYSE:KRMN), acquiring 292,428 shares valued at approximately $21.11 million, according to a November 14 SEC filing.

What Happened

StepStone Group initiated a new position in Karman Holdings (NYSE:KRMN), purchasing 292,428 shares during the third quarter, as shown in a filing with the Securities and Exchange Commission dated November 14. The stake was valued at $21.1 million at the end of September, making Karman the fund's second-largest disclosed U.S. equity holding.

What Else to Know

This new position represents 9.9% of StepStone's 13F reportable assets under management.

Top holdings after the filing:

• NYSE:STUB: $127.3 million (62.7% of AUM)
• NYSE:KRMN: $21.1 million (10.4% of AUM)
• NYSE:PATH: $17.2 million (8.5% of AUM)
• NASDAQ:GENVR: $11.2 million (5.5% of AUM)
• NASDAQ:DKNG: $6 million (3% of AUM)

As of Friday, Karman shares were priced at $68.44, more than tripling from a February IPO price of $22 per share.

Company Overview

Company Snapshot

• Karman designs, manufactures, and tests mission-critical systems for missile and defense, space programs, hypersonic, and launch vehicle markets, including metallic and composite flight hardware and sub-assemblies.
• The company generates revenue primarily through the sale of specialized aerospace and defense hardware, payload protection and deployment systems, aerodynamic interstage systems, and propulsion solutions.
• It serves government agencies, defense contractors, and commercial space launch providers seeking advanced aerospace and defense solutions.

Karman Holdings Inc. operates as a specialized provider of mission-critical systems and hardware for the aerospace and defense sector, leveraging engineering expertise to serve both government and commercial customers. The company’s strategy focuses on delivering high-performance, technically complex solutions for demanding applications in space, missile defense, and hypersonics. Its competitive edge stems from integrated capabilities in design, manufacturing, and testing, supporting customers’ most advanced aerospace and defense initiatives.

Foolish Take

StepStone’s move highlights a willingness to buy exposure to defense and space spending even after a sharp run-up, rather than chasing cyclical rebounds or short-term dislocations. Karman has already more than tripled from its IPO price, yet the position still sits well behind the fund’s dominant StubHub holding, signaling conviction without overconcentration.

The company’s latest quarter helps explain that confidence. Karman reported record revenue of $121.8 million, up 42% year over year, alongside adjusted EBITDA of $37.7 million and a 31% margin, reflecting strong operating leverage as production volumes scale. More important for long-term visibility, the firm’s funded backlog reached a record $758.2 million, up 31% since year-end and giving the business multi-year revenue coverage across missile defense, hypersonics, and space launch programs.

Compared with other holdings in the portfolio, Karman offers a different risk profile. Unlike consumer-facing or platform-driven businesses, demand here is tied to government and defense budgets, contract durations, and program lifecycles. That makes earnings less sensitive to economic swings, but more dependent on execution and sustained federal spending. For patient investors, the takeaway is clear. The stock’s rally reflects real fundamentals, not just momentum, but future returns will hinge on backlog conversion and margin discipline rather than multiple expansion alone.

Glossary

13F reportable assets: Assets that institutional investment managers must disclose quarterly to the SEC, showing certain U.S. equity holdings.
Assets under management (AUM): The total market value of investments managed on behalf of clients by a fund or firm.
Position: The amount of a particular security or asset held by an investor or fund.
Stake: The ownership interest or share an investor holds in a company.
Mission-critical systems: Products or technologies essential to the functioning and success of key operations, often with high reliability requirements.
Sub-assemblies: Smaller, pre-assembled components that are combined to form a complete product or system.
Hypersonic: Refers to vehicles or systems capable of traveling at speeds greater than five times the speed of sound (Mach 5+).
Payload protection and deployment systems: Equipment designed to safeguard and release cargo or instruments during aerospace missions.
Aerodynamic interstage systems: Structures connecting rocket stages, designed to manage airflow and separation during flight.
Propulsion solutions: Technologies or systems that provide thrust to move aerospace vehicles.
Defense contractors: Companies that supply products or services to military or government defense agencies.
TTM: The 12-month period ending with the most recent quarterly report.

Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends UiPath. The Motley Fool has a disclosure policy.