Kratos Defense Stock Slips 24.9% YTD: Should You Buy the Dip?
Kratos Defense & Security Solutions, Inc.KTOS shares have lost 24.9% year to date against the Zacks Aerospace-Defense Equipment industry’s growth of 6.6%. However, contract wins and growing demand for unmanned, autonomous tactical systems are driving strong interest in Kratos Defense’s drone and defense technologies.
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Other defense equipment stocks like Curtiss-WrightCW and Teledyne TechnologiesTDY have risen 32.2% and 23.8%, respectively, year to date. Curtiss-Wright is poised to gain from continued strength in the naval defense market, supported by consistent government defense spending. Teledyne Technologies is experiencing solid defense-sector demand, especially in Europe, amid increasing regional military expenditures.
Considering Kratos Defense’s underperformance relative to its industry, investors may be wondering what is the next move. Let’s examine the factors and assess the stock’s investment prospects to make an informed decision.
Tailwinds for KTOS Stock
Kratos Defense is one of the leading providers of unmanned aerial target drones for U.S. and allied militaries, with its strong reputation and proven technology driving consistent contract wins, strategic partnerships, global expansion and long-term competitiveness.
On May 6, 2026, the company reported first-quarter results. Unmanned Systems reported revenues of $82.6 million, reflecting 30.9% organic growth over first-quarter 2025 revenues of $63.1 million. Kratos Government Solutions reported revenues of $288.4 million, reflecting 11.8% organic growth over first-quarter 2025 revenues of $239.5 million. KTOS posted a consolidated book-to-bill ratio of 1.6 to 1, with bookings worth $605.2 million.
In April 2026, Kratos Defense was awarded an Other Transaction Agreement with a total potential value of $446.8 million, contingent on the exercise of all options. Under the agreement, Kratos Defense will lead the development and integration of the ground infrastructure needed to operate resilient missile-warning and missile-tracking satellites in medium Earth orbit, including systems designed to detect advanced threats, such as hypersonic missiles. It strengthens the company’s position as a prime contractor in the rapidly expanding space-based missile defense market.
In March 2026, Kratos Defense was selected by the Naval Surface Warfare Center, Port Hueneme Division for production and delivery of up to 36 Oriole solid rocket motors and three Thrust Vector Control nozzle kits. This $49 million contract is expected to strengthen its revenue visibility and strategic positioning in high-growth defense segments.
Kratos Defense’s collaboration with Airbus to prepare two XQ-58A Valkyrie drones for their first flight with a European mission system marks a significant step toward expanding its unmanned combat technology into international markets. This initiative positions the company not only as a drone manufacturer but also as a key enabler of next-generation autonomous air combat systems globally.
Headwinds for KTOS
Although Kratos Defense shows notable growth prospects, it continues to face certain obstacles. One such obstacle is supply-chain disruption stemming from raw material shortages, which continue to affect the broader defense sector and could adversely impact the company’s operations.
Higher costs for key inputs, such as materials, parts, supplies, and external services (including consultants, subcontractors, and vendors), have materially increased the company’s cost base, potentially weighing on operations, margins and financial forecasts.
Estimates for KTOS Stock
The Zacks Consensus Estimate for 2026 and 2027 earnings per share (EPS) indicates an increase of 40% and 37.48%, respectively, year over year.
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The Zacks Consensus Estimate for Curtiss-Wright’s 2026 and 2027 EPS indicates an increase of 13.98% and 10.97%, respectively, year over year. The consensus estimate for Teledyne Technologies' 2026 and 2027 EPS implies an increase of 9.19% and 8.09%, respectively, year over year.
KTOS’ Earnings Surprise History
The company beat on earnings in each of the trailing four quarters, delivering an average surprise of 22.64%.
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KTOS’ Return on Equity Lower Than Industry
The company’s trailing 12-month return on equity of 4.3% is lower than the industry average of 12.99%. Return on equity, a profitability measure, reflects how effectively a company utilizes its shareholders’ funds to generate income.
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KTOS Stock Trades at a Discount
In terms of valuation, KTOS’ forward 12-month price/sales (P/S) is 5.86X, a discount to the industry’s average of 11.98X.
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What Should an Investor Do Now?
Kratos Defense continues to strengthen its position in unmanned systems, missile defense, and space infrastructure through strong operational growth, major defense contract wins, and expanding international partnerships. Its recent awards and collaborations reinforce the company’s long-term growth outlook by increasing revenue visibility, enhancing its role in advanced military technologies, and expanding its presence in next-generation autonomous and hypersonic defense programs.
Given its poor ROE and price underperformance, new investors may wait for a better entry point. Investors who already own this Zacks Rank #3 (Hold) stock may consider retaining their position, supported by the company’s strong earnings growth outlook. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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