Kratos Defense Rises 280.4% YTD: Should You Hold or Fold the Stock?

Kratos Defense & Security Solutions, Inc. KTOS shares have rallied 200.2% year to date compared with the Zacks Aerospace-Defense Equipment industry’s growth of 25.7%. The company is benefiting from strong demand for unmanned systems. KTOS is one of the leading producers of drones and related technology, which is a critical and growing area of warfare. 
 

Other defense equipment stocks, such as BWX Technologies BWXT and CurtissWright CW, have also outperformed the industry in the year-to-date period. Shares of BWXT and CW have gained 78.7% and 65.8%, respectively, during the same timeframe.

Considering Kratos Defense’s outperformance, investors might be left wondering if this is a good time to add KTOS stock to their portfolio. Let's examine the factors that contributed to the share price gain and assess the stock's investment prospects to make an informed decision.

Advantageous Factors for KTOS Stock

Kratos Defense serves as one of the leading providers of unmanned aerial target drone systems for the U.S. Air Force, Navy, Army, and several allied defense agencies, positioning it as a key player in the global unmanned aerial systems (“UAS”) market. This leadership role has enabled the company to secure multiple new contracts and form strategic partnerships centered on its advanced target drones, strengthening its presence and competitiveness worldwide.

Reflecting this momentum, Kratos’ Unmanned Systems division reported third-quarter 2025 revenues of $87.2 million, marking a 35.8% organic increase from $64.2 million a year ago —underscoring strong demand and successful execution in its expanding UAS operations.

In November 2025, Kratos Defense announced that it has signed a definitive agreement to acquire 100% of the ordinary shares of Orbit Technologies Ltd for $356.3 million. It strengthens Kratos’ capabilities in mission-critical communications across domains, complements its existing technology base, expands its customer and geographic reach, and aligns with market growth trends in satellite communications & unmanned systems. If executed well, it could boost Kratos’ growth, margin profile and competitive positioning.

In October 2025, Kratos Defense announced a strategic partnership with Korea Aerospace Industries to advance Manned-Unmanned Teaming (MUM-T) technologies. The collaboration combines Kratos’ expertise in affordable, high-performance unmanned aerial systems. The company said the partnership marks a key step in evolving how crewed and uncrewed aircraft operate together in complex defense environments.

For defense stocks like KTOS, a solid backlog also reflects strong growth prospects. By the end of the third quarter of 2025, KTOS had a solid backlog of $1.48 billion. This implies solid revenue generation prospects for the company.

Estimates for KTOS Stock

The Zacks Consensus Estimate for 2025 earnings per share (EPS) has remained unchanged over the past 60 days and the same for 2026 EPS indicates an increase of 1.41%. 
 

The Zacks Consensus Estimate for BWX Technologies’ 2025 and 2026 EPS indicates an increase of 1.88% and 3.21%, respectively, over the past 60 days. The consensus estimate for CurtissWright’s 2025 and 2026 EPS indicates an increase of 1.01% and 3.59%, respectively, over the past 60 days.

Headwinds for KTOS

Although Kratos Defense shows notable growth prospects, it continues to face certain obstacles. One such obstacle is disruptions to the supply chain, arising from raw material shortages, which continue to impact the defense sector as a whole and might affect the company's operations. 

Kratos Defense's programs may see their funding cut, postponed, or eliminated due to current federal budget pressures.

KTOS’ Earnings Surprise History

The company beat on earnings in each of the trailing four quarters, delivering an average surprise of 29.17%.

KTOS Stock’s Poor ROIC

The image below shows that KTOS stock’s trailing 12-month return on invested capital (ROIC) lags the peer group’s average. This suggests that the company's investments are not yielding sufficient returns to cover its expenses.

KTOS Stock Trades at a Discount

In terms of valuation, KTOS’ forward 12-month price-to-sales (P/S) is 8.58X, a discount to the industry’s average of 9.32X. 
 

Its industry peers are also trading at a discount compared to the industry’s forward 12-month P/S. While BWX Technologies is trading at forward 12-month sales of 5.17, CurtissWright is trading at 6.

What Should an Investor Do?

Kratos Defense is well-positioned for long-term growth. Its strategic partnerships with major global defense organizations, like Korea Aerospace Industries and others, enhance its technological capabilities and market reach. Meanwhile, a solid backlog of existing contracts ensures a steady stream of future revenues. However, considering its unchanged near-term EPS growth and poor ROIC, new investors interested in this stock should wait for a better entry point. 

However, those who already have this Zacks Rank #3 (Hold) stock in their portfolio may continue to retain it, considering the company’s impressive long-term year-over-year sales and earnings growth projection. 

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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This article originally published on Zacks Investment Research (zacks.com).

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