Why Kratos Defense Stock Popped Close to 50% This Week
Key Points
Kratos' stock is soaring on the back of increased defense spending budgets for 2027.
The company also just won a sizable contract this week with the U.S. Marine Corps.
With a soaring share price, the stock looks overvalued today.
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Shares of Kratos Defense & Security Solutions (NASDAQ: KTOS) jumped 45% this week, according to data from S&P Global Market Intelligence. The defense contractor focused on unmanned vehicles (drones) and advanced communication systems for combat is soaring due to a new contract win, increased proposals for defense spending in 2026, and the United States' operation in Venezuela.
Rising revenue, increasing defense budgets
It has been a busy week for defense contractors. After the operation in Venezuela to arrest its President Nicolas Maduro, defense stocks such as Kratos started trading higher on the week. Then, it was announced that the United States government is proposing a massive increase to the defense budget for 2027, lifting it to $1.5 trillion compared to $1 trillion in 2026.
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This could mean huge investments into cutting-edge technologies, which Kratos specializes in. The company builds unmanned drones that fly alongside tactical aircraft, such as the F-35, as well as space and satellite communication systems that could be used for the Golden Dome. Last quarter, Kratos revenue grew 26% year-over-year, with projections to grow 15%-20% in 2026 and 18%-23% in 2027.
As well, this week Kratos won a contract with the Marine Corps in the United States to work with Northrup Grumman on new unmanned aerial systems that will be deployed alongside manned aircraft such as the F-35. The future of warfare is drones, and Kratos is one of the cutting-edge suppliers for the United States government.
Image source: Getty Images.
Time to buy Kratos Defense stock?
After this week's bump, Kratos stock now trades at a market cap of $19 billion. It generates $1.3 billion in annual sales, making the stock expensive vs. other defense contractors. A bull may argue that Kratos is growing more quickly than other defense contractors, but these are low-margin businesses due to the mandated margins on government contracts.
Today, the stock trades at a price-to-earnings ratio (P/E) of over 900. That will impede stock price performance over the long run despite its strong growth characteristics. Avoid buying Kratos stock after this price bump.
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Brett Schafer 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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