Is Karman Holdings (KRMN) an Investment Bet?

Baron Funds, an investment management company, released its “Baron Discovery Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, the fund was down 6.17% (Institutional Shares), outperforming the -11.12% return for the Russell 2000 Growth Index. The market began strong in February but faded due to Trump's serious tariff enactment, which the market perceives as inflationary and slowing economic growth. The decline accelerated after April 2nd, causing fears of a trade war and global recession. In addition, please check the fund’s top five holdings to know its best picks in 2025.

In its first-quarter 2025 investor letter, Baron Discovery Fund highlighted stocks such as Karman Holdings Inc. (NYSE:KRMN). Karman Holdings Inc. (NYSE:KRMN) engages in designing, testing, manufacturing, and sale of mission-critical systems for missile and defense, space programs, hypersonic, and launch vehicle markets. The one-month return of Karman Holdings Inc. (NYSE:KRMN) was -31.05%, and its shares gained 40.56% of their value in the last three months. On May 19, 2025, Karman Holdings Inc. (NYSE:KRMN) stock closed at $44.32 per share with a market capitalization of $5.858 billion.

Baron Discovery Fund stated the following regarding Karman Holdings Inc. (NYSE:KRMN) in its Q1 2025 investor letter:

"Karman Holdings Inc. (NYSE:KRMN) is a leading proprietary space and defense solutions provider. We initiated a position in February 2025 when the company executed its IPO. Formed via four key acquisitions by Dallas-based private equity firm, Thrive Capital, in the early 2020s, Karman has a management team with a strong mix of executive experience and technical, engineering talent.

Karman designs, tests, and manufactures mission-critical systems for existing and emerging missile and space programs, which are some of the growthiest and in-demand segments of the defense industry. Segments include Hypersonics & Strategic Missile Defense (33.2% of revenues), Space & Launch (33.3%), and Tactical Missile & Integrated Defense Systems (33.5%). Karman has become an outsourcer of choice for highly technical systems related to these programs. It has unique experience in complex/ proprietary manufacturing methods, high end materials and composites, and system level design. Nearly 90% of Karman’s sales are sole-sourced from the company, and 94% of its revenue is tied to proprietary IP-driven solutions (including patent protected technologies). The company’s unique capabilities have allowed it to grow revenue organically at a low double digit rate over time (with total growth including acquisitions at over 30%) with adjusted cash flow margins in excess of 30%.

We believe Karman can continue to expand its solution set over time and that it is poised to grow nicely over the next five years as it targets the priorities that are emerging in the new defense budget."

Karman Holdings Inc. (NYSE:KRMN) is not on our list of 30 Most Popular Stocks Among Hedge Funds. In the first quarter of 2025, Karman Holdings Inc. (NYSE:KRMN) reported record revenue of $100.1 million, reflecting a 20.6% year-over-year increase. While we acknowledge the potential of Karman Holdings Inc. (NYSE:KRMN) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.

In another article, we covered Karman Holdings Inc. (NYSE:KRMN) and shared the list of best mid cap defense stocks to buy according to analysts. ClearBridge Small Cap Growth Strategy sold its holdings in Karman Holdings Inc. (NYSE:KRMN) in Q1 2025 after a 55% IPO appreciation. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.

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Disclosure: None. This article is originally published at Insider Monkey.