2 Space and Defense Stocks Turning Backlogs Into Revenue Growth

Key Points

• Two space and defense stocks stand out for $1 billion or more in backlog, a potential sign of strong continued sales performance to come.
• KRMN and AVAV have both seen significant price declines in the last several months.
• While both companies carry some risks, Wall Street remains strongly bullish in each case.

While many eyes are on SpaceX NASDAQ: SPCX, other companies in the industry give investors reasons to watch the skies as well. Quarterly earnings are always a popular way of identifying potential targets in the space and defense industry, but investors may risk overlooking the importance of backlog in this sphere as well. Backlog—work or orders that are contracted but not yet completed or recognized as revenue—is especially key to these firms because they often work on massive contracts spanning multiple years.

Backlog is particularly important at this stage because so many governments around the world are continuing to ramp up defense spending. Add to the mix rising political tensions, a race toward AI-supported tools, and the industry-wide boost from SpaceX's highly visible IPO, and it's easy to see why space and defense companies with robust backlogs and a history of revenue growth are looking especially good heading into the second half of the year.

Karman Is Down From Its High But Still Promising

In the early part of its second full year of public trading, defense firm Karman NYSE: KRMN has been on something of a course correction in terms of share price. KRMN stock has plunged by nearly 40% year-to-date (YTD), though it remains about twice its price at the February 2025 IPO.

Investors may be wondering why the price dropped, especially given the strengths to be found across Karman's Q1 2026 earnings report. In particular, record first-quarter revenue of $151 million represented a 51% increase year-over-year (YOY) as well as a solid beat over analyst predictions. This growth was driven by strong demand across multiple portions of Karman's business, including both defense and space programs, so it may signal continued strength even if the external situation changes. It is also evidence of the company's success at converting strong demand from customers into real sales.

But perhaps the biggest takeaway from Karman's first earnings report of the year is its record-high backlog of more than $1 billion. As a company that is relatively untested in the public sphere, this signals significant strength across both defense and government customers. The fact that revenue and backlog are both increasing at the same time also suggests that Karman is able to handle this surging demand by meeting order requests and timelines.

Of course, there are risks. Karman's dramatic rise means that, even after the recent selloff, the company has a sky-high price-to-earnings (P/E) ratio of nearly 200, far above the broader market and even the sector. Valuation may indeed be a concern for investors. The company's heavy reliance on high-profile government contracts leaves it somewhat vulnerable in case plans change or if there is a program delay, for example.

Still, analysts are more inclined to see Karman's share price dip as a momentary bump in the road than evidence of a long-term issue. The consensus share price across Wall Street is nearly $106 per share, roughly 128% above KRMN's recent trading price. Nine of 11 analysts view the stock favorably, with a consensus Buy rating.

A Higher-Risk Option With Strong Backlog and Sales

As one of the leading drone firms, AeroVironment Inc. NASDAQ: AVAV stands out for its $1.1 billion funded backlog as of the latest quarterly report. This comes on top of $4.6 billion in YTD awards as of that time, despite a slowdown due to government funding delays and other issues that prompted a $151 million non-cash goodwill impairment.

Despite the fact that AeroVironment came up short of analyst revenue predictions in the last reported quarter, it still sported an impressive 143% YOY growth in that area. And with production capacity growing rapidly—thanks in large part to a new 140,000 square foot plant in the works in Salt Lake City—the company should have no issues tackling ever-increasing demand.

It should be noted that the firm is suffering from some financial health red flags according to its TradeSmith health indicator, and shares have fallen by nearly 40% YTD. Still, analysts predict a strong 27% in earnings growth in the year to come, and Wall Street is overwhelmingly bullish on AVAV shares. Twenty of 24 analysts rate AVAV a Buy, and the consensus share price of nearly $312 is about 110% higher than the current stock price. That said, due to its recent issues, AeroVironment may be considered a higher-risk venture than some other companies in the defense space—although that may also come with the potential for greater reward.