Down 25%, Is Defense Darling Kratos an Attractive Opportunity?

Key Points

• Kratos has been one of the most impressive stocks in the market in 2025, delivering a triple-bagger return.
• However, the stock recently took a huge hit after its latest earnings and is down big from its highs.
• With revenue and margin guidance on the rise and a +$13 billion bid and proposal pipeline, is Kratos' dip an opportunity?

In a standout year for aerospace and defense stocks, Kratos Defense and Security Solutions NASDAQ: KTOS has separated itself from the pack. The iShares U.S. Aerospace & Defense ETF BATS: ITA—a commonly used barometer of U.S. stocks in this industry—has delivered a total return of around 46% in 2025. In contrast, Kratos has stormed past this, up approximately 200% as of the Nov. 10 close.

However, after a sharp drop following the company's Q3 2025 earnings release, investors are wondering if Kratos remains a buy or if the stock has outpaced its fundamentals. Below, we’ll break down the firm’s latest results and other information to gain an updated perspective on this high-flying stock. 

Kratos Tops Estimates; Revenue Grows at Fastest Pace in Over 10 Years

Kratos reported its earnings results on Nov. 4, with markets reacting to them in the following days. The company posted revenue of approximately $348 million, an increase of 26% year-over-year (YOY).

This beat analyst expectations by nearly $25 million, signaling stronger-than-expected momentum.

Crucially, 23.7% of that growth was organic, eliminating the effect of acquisitions.

This suggests that the business isn't simply relying on acquisitions to boost sales, and points to sustainable long-term growth that will provide value for shareholders.

The firm’s adjusted earnings per share (EPS) of 14 cents also came in strong, beating expectations by 2 cents for total growth of 27.3%.

Kratos Boosts Guidance, But Markets Wanted More

Kratos didn't just stop with a strong quarter—the firm raised its full-year 2025 organic revenue growth guidance to 14%-15%, up from 11%-13%. 

The company also raised its 2026 organic growth guidance to 15%-20%, and provided preliminary guidance for 2027, targeting 18%-23% organic growth. Lastly, Kratos projected that its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin will rise by 100 basis points in both 2026 and 2027, though it expects margins to range between 8.7% and 9% in 2025. 

While this forward outlook points to accelerating growth and improving profitability, shares fell by a whopping 20% following the earnings release. This suggests that markets wanted to see guidance that was even stronger than what Kratos provided—not entirely surprising, given the astronomical run-up in shares.

Updated Targets Eye 14% Upside in KTOS

As of the Nov. 10 close, Kratos trades for just over $79 per share—down around 25% from its high, and down 12% since reporting earnings. The consensus price target on Kratos stands at just over $82, implying around 4% upside in shares. Price targets updated since the firm’s earnings report are even more optimistic. The average of those tracked by MarketBeat comes in at $90, suggesting the stock could rise nearly 14%.

There is a lot to like about Kratos. It has exposure to high-growth areas like unmanned aerial systems, hypersonic missiles, and rocket propulsion.

It has also demonstrated its ability to win contracts, holding a backlog of $1.48 billion.

In August, Kratos said its Valkyrie tactical drones are becoming a program of record (an official, budgeted procurement program) for the U.S. Marine Corps.

This partnership isn't yet included in its guidance, meaning there could still be significant upside to its forecasts. Delays from the United States government shutdown have impacted award timing for this initiative.

Additionally, Kratos is also working with Airbus OTCMKTS: EADSY to target a similar deal with the German Air Force, expanding its international footprint.

Despite the promising fundamentals, Kratos needs to continue seeing significant growth and margin expansion to justify its current valuation. The company is actively pursuing $13.5 billion worth of possible defense contracts, so the growth potential is there. However, successfully securing and delivering on these bids remains a key risk. Even with its recent fall, Kratos remains a risky play, but there is potential for significant upside going forward given the company’s sizable opportunities.