Kratos Defense & Security Solutions (KTOS) reported revenue of $458.8M for the second quarter of fiscal 2026 (ended June 28, 2026), up 30.5% from a year earlier and well above analyst estimates. Profit stayed thin and the company still burned cash, so the stock, at $40.42 on Oct. 16, 2026, sits far below its 52-week high of $134. This piece uses Kratos as a concrete example of a theme in recent headlines: the US and its allies spending more on drones, hypersonic weapons and radar, and how slowly that spending turns into profit.
Key facts
- Revenue, quarter ended June 28, 2026: $458.8M versus analyst estimates of $410.4M, reported Aug. 4, 2026. Year-ago revenue was $351.5M.
- Earnings per share (EPS), same quarter: $0.21 as compared with an estimate of $0.1388. Under standard accounting (GAAP), diluted EPS was $0.02, the same as a year earlier.
- Operating margin, same quarter: -0.3%, meaning core operations lost a small amount. Operating income was -$1.6M.
- Free cash flow, same quarter: -$27.1M. Free cash flow is cash from operations minus spending on equipment and facilities.
- Share price, Oct. 16, 2026: $40.42, down 0.79% on the day. The 52-week range is $37.84 to $134.
- Next earnings date: Nov. 3, 2026. Analysts expect EPS of $0.207 and revenue of $470.5M.
What happened
The theme. Recent headlines point to governments putting more money into lower-cost uncrewed aircraft, hypersonic weapons (missiles that fly faster than five times the speed of sound), and radar. Kratos builds in these areas. Those headlines show the theme at work: on Oct. 14, 2026, the company announced it broke ground on a new radar facility and a hypersonics testing facility in Indiana, according to its release. Press coverage has also asked whether orders for its Valkyrie drone will come through, and whether demand for turbojet engines can support growth. These are expansions and expectations, not yet reported results.
The quarter. Revenue beat the analyst estimate by $48.4M, or 11.8%. EPS beat by 51.3%. Product revenue was $289.1M, compared with $216.6M a year earlier. Service revenue was $169.7M, compared with $134.9M. So product revenue drove most of the growth. By region, the United States produced $360.4M. The Middle East was next at $33.6M, followed by Europe at $27.3M and Asia Pacific at $26.7M.
Net income was $4.4M, up 51.7% from $2.9M, but that is a small profit on much larger sales. Net margin over the trailing 12 months is 2.0%.
The trend. Over the past several quarters, sales were flat to slightly lower and then jumped:
| Quarter ended | Revenue | Gross margin | Operating margin | Free cash flow | |---|---|---|---|---| | June 29, 2025 | $351.5M | 21.0% | 1.1% | -$32.2M | | Sept. 28, 2025 | $347.6M | 22.2% | 2.0% | -$41.3M | | Dec. 28, 2025 | $345.1M | 21.4% | 3.0% | -$12.1M | | March 29, 2026 | $371.0M | 22.6% | 2.1% | -$48.4M | | June 28, 2026 | $458.8M | 21.8% | -0.3% | -$27.1M |
What changed: sales grew fast but the operating margin moved the wrong way, from 3.0% in the December 2025 quarter to -0.3% in the latest one. Gross margin, the share of sales left after direct costs, slipped to 21.8% from 22.6% in the prior quarter. Spending below the gross profit line grew faster than gross profit. In plain terms, Kratos sold more but kept less of each dollar. Operating cash flow was -$9.9M and capital spending was -$17.2M. Kratos has had negative free cash flow in all five of the last five quarters, and the only quarter with positive operating cash flow was the one ended Dec. 28, 2025 ($12.1M, still not enough to cover capital spending). The company paid no dividends and made no buybacks in the latest quarter.
Why it matters for investors
Growth is real, profit is not there yet. Headlines about rising defense spending suggest a tailwind behind the theme, and Kratos is showing it in sales. The question is whether higher volume eventually lifts margins or whether growth costs more than it brings in. The latest quarter leans toward the second so far, though one quarter does not settle it.
The valuation asks a lot. On trailing 12-month earnings, the price-to-earnings ratio (share price divided by profit per share) is 235.14. Price-to-sales is 4.98, EV/EBITDA (company value relative to operating profit before some costs) is 53.44, and price to free cash flow is negative at -58.86 because cash flow is negative. Compare peers:
| Company | Market cap | P/E | Net margin | |---|---|---|---| | Kratos (KTOS) | $7.59B | 235.14 | 2.0% | | DRS | $9.45B | 29.52 | 8.5% | | AVEX | $867.4M | 35.62 | 6.5% | | AVAV | $6.19B | -20.93 | -14.5% | | AADX | $1.96B | -7.43 | -40.1% |
Two peers are profitable and trade at far lower earnings multiples. Two lose money. Kratos sits between the groups: barely profitable and priced for much more growth. FMP's discounted cash flow model, which estimates value from future cash, gives -$7.46 per share as of Oct. 18, 2026. That is a model output and depends heavily on its assumptions, but it shows how little cash the business produces today.
Analysts remain positive. The consensus rating is Buy: 1 strong buy, 21 buy, 3 hold and no sells. Price targets average $91.06, with a median of $83.50, a high of $135.00 and a low of $68.00. Even the lowest target is well above the Oct. 16 price. Goldman Sachs (Oct. 12, 2026) and Jefferies (Oct. 1, 2026) both maintained Buy ratings. Targets are opinions, not guarantees. For later periods, analysts forecast revenue of $602.0M for the period ending March 28, 2028 (EPS $0.32) and $665.6M for the period ending June 28, 2028 (EPS $0.34).
Our MoonshotScore. Stock Expert AI's MoonshotScore V2 for KTOS is 33.9, rated Weak. Measured against its sector, the pillars are: safety 96, quality 41, momentum 25, valuation 25, and growth 15. The strong safety score matches the balance sheet: $1.44B in cash and short-term investments against $193.6M of total debt as of June 28, 2026, with shareholders' equity of $3.43B. Its Altman Z score is 7.63, which points to low bankruptcy risk, and its Piotroski score is 5 out of 9, a middling read on financial health. The low growth score is notable given the strong revenue jump, and the data here does not say why.
Risks and what could go wrong
- Valuation risk. A P/E of 235.14 leaves little room for disappointment. The stock has already fallen far from its 52-week high.
- Margin risk. The operating margin turned negative while sales jumped. If new programs keep costing more than they earn, profit may not catch up.
- Cash burn. Free cash flow was negative in every one of the last five quarters, and new facilities such as the Indiana sites add capital spending. The large cash pile gives a cushion, but it is finite.
- Order timing. Headlines discuss whether Valkyrie orders will arrive. Government orders can be delayed or changed, and until they are signed they are not revenue.
- Insider selling. Form 4 filings show 0 open-market purchases and 28 sales by insiders in the last 90 days. Sales can have many personal reasons, but there were no purchases to offset them.
What to watch next
- Nov. 3, 2026 earnings. Analysts expect revenue of $470.5M and EPS of $0.207. Watch whether the operating margin returns to positive.
- Cash flow. Look for whether operating cash flow turns positive and covers capital spending.
- Orders. Look for signed contracts tied to Valkyrie, turbojet engines, radar and hypersonics testing.
- Product mix. Check whether product revenue keeps growing faster than service revenue and what that does to gross margin.
Frequently asked questions
Q: What did Kratos report for its latest quarter?
For the quarter ended June 28, 2026, Kratos reported revenue of $458.8M, up 30.5% from $351.5M a year earlier, and net income of $4.4M. EPS of $0.21 beat the estimate of $0.1388. Operating margin was -0.3%, and free cash flow was -$27.1M.
Q: Why is Kratos stock so far below its 52-week high?
The stock closed at $40.42 on Oct. 16, 2026, against a 52-week range of $37.84 to $134. This article's data does not give one cause. What the numbers do show is a company with a high valuation (P/E of 235.14), thin profit, negative free cash flow and a Weak MoonshotScore of 33.9. Investors may be questioning how soon sales growth will turn into profit. This is not a forecast of where the price goes next.
Q: Is Kratos profitable, and does it have enough cash?
Barely profitable. Net income was $4.4M in the quarter ended June 28, 2026, and trailing 12-month net margin is 2.0%. Operations lost $1.6M before interest and taxes in that quarter. On the balance sheet, Kratos held $1.44B in cash and short-term investments against $193.6M of total debt as of June 28, 2026, which is why its safety pillar scores 96. This is information, not advice to buy or sell.
This is educational content, not investment advice. Past performance does not guarantee future results.