Kratos Defense & Security Solutions (KTOS) is currently priced at a mere $15, yet this defense company has considerable potential. Kratos currently makes target drones for military training purposes. However, this up-and-coming defense star is also making strides in the realm of remote-controlled combat drones powered by jets. The question is whether Kratos can capture the bulk of the market share and continue to expand its offerings.
Kratos has impressed investors with positive GAAP across each of the last couple quarters. The company was cash flow positive throughout the entirety of the second half of 2018. Slowly but surely, Kratos sales have spiked upward. Kratos executives recently reported the company’s unmanned aerial vehicles segment increased sales 75% across the past couple of years. Company leaders insist sales for this offering will grow upwards of 90% this year. As a whole, Kratos executives anticipate its overall yearly sales to increase about 20% for the year.
Kratos’ tactical drone projects have gained considerable momentum in recent months. All in all, the company has 10 unique projects in development. These projects will likely bolster the company’s revenue for the next few years. United States military branches will need hundreds or even thousands of these diminutive tactical drones. Though the sale of thousands of drones might not catch investors’ attention, the little-known truth about these specialized drones is they sell for upwards of $3 million a piece. This means a company like Kratos really can make a pretty penny by specializing in tactical drones. Look for Kratos to surpass the $130 million in sales it generated last year from its combat drone business.
It appears as though drones are here to stay for the foreseeable future. As long as military branches continue to use drones, companies like Kratos will have a market to serve. The United States certainly spends its fair share on defense, so the likes of Kratos stand to benefit across posterity. The only question is whether Kratos’ drones have as much or more merit than those of competitors. It appears as though Kratos’ engineers have put in the work to be a true industry power player. As an example, one of the company’s top new drones, the XQ-58A VALKYRIE was recently subjected to a test flight. Everything went as planned, setting the stage for Kratos to start taking orders on the drone this year. If the company’s additional drone test flights are executed without a problem, Kratos will build even more momentum and capture that much more market share.
Prospective Kratos investors will be interested to learn the company started out as a wireless infrastructure vendor. Kratos transitioned to a government contractor this past decade. Those who understand military technology are adamant Kratos’ portfolio of defense electronics is better than most investors assume. Though Kratos is quickly becoming an industry power player in terms of drones, the company is also hard at work developing jet-powered aircraft. It is certainly possible the United States military and other militaries around the world will eventually use Kratos drones and aircraft in unison during military expeditions. In fact, some of the company’s creations are specifically made for the United States Air Force. As an example, the aforementioned Valkyrie drone was made to help the Air Force add more eyes in the sky without paying an absurdly high price. The success of the Valkyrie drone is important as it will likely sell for between $2 million and $3 million. This is quite the price break from the F-35 that costs a whopping $80 million.
Kratos stock has soared more than 300% since 2016. The stock was priced at $13.87 to start the year, and is now on the march toward the $16 level. Though Kratos has been fairly volatile in the past, it appears as though the stock is settling down. There is certainly potential for Kratos to increase in value yet shares are still fairly expensive.
If you do not mind the fact that Kratos trades at nearly three times company sales compared to the 1.6 multiples of Northrop Grumman and Lockheed Martin, you should consider a position in Kratos. Drones are undoubtedly the wave of the future in terms of military tech, and Kratos is in the catbird seat.
Regards,
Ethan Warrick
Editor
Wealth Authority
