Kratos’ (KTOS) businesses beyond drones are growing rapidly, while its drone business remains healthy and has multiple strong, upcoming catalysts on the roadmap. Also importantly, the company recently delivered impressive second-quarter financial results.
In light of all of these points, KTOS stock looks appealing for growth investors, despite its rather high valuation. However, it has become much less expensive over the last year, making the shares meaningfully more attractive than previously reported.
Kratos’ Hypersonic and Engines Businesses Are Taking Off
The firm expects to generate $400 million in revenue and “at least” $700 million in sales in 2026 and 2027, respectively, from selling hypersonic systems. The company’s engine business is also revving up, as Kratos received orders for 3,000 of its Spartan turbojet engines, which it expects to manufacture next year. These engines power missiles and drones.
Moreover, KTOS indicated that it expects to sell another 5,000 engines in 2028. And in partnership with General Electric (GE), Kratos plans to start building a new product, BladeWorks turbofan engines, in 2028. According to Google AI, the latter products are “designed primarily for unmanned aerial vehicles (UAVs), loitering munitions, cruise missiles, and jet-powered target drones.”
With America alone looking to spend $55 billion on drones “and autonomous warfare programs” during fiscal 2027, up from just $225 million the prior year, and the Pentagon also ramping up missile spending, demand for Kratos’ engines should indeed soar going forward.
And these trends are already lifting the firm’s revenue, as the sales of its Kratos Government Solutions (KGS) unit, which includes its businesses aside from its drones, jumped 22% last quarter versus the same period a year earlier, excluding the impact of acquisitions.
The Drone Business Also Looks Strong
Of course, Kratos’ drone unit should get a big boost from the likely, huge increase in the Pentagon’s spending on the devices to which I alluded earlier. Further, Kratos is working with Airbus, the huge European airplane maker, to develop AI-powered drones for Germany. The initial deliveries of the drones to Germany are slated to occur in 2029. Other countries on the continent could decide to purchase the drone over the longer term.
Meanwhile, Taiwan is looking to adopt a new version of Kratos’ core Valkyrie drone and is developing a “high-speed, jet powered attack drone” called Mighty Hornet IV, in partnership with Taiwan. So apparently the latter country is interested in adopting the Hornet. Meanwhile, multiple, other countries are also considering buying similar devices, CEO Eric DeMarco indicated on the firm’s Q2 earnings call which was held on August 4.
Kratos Reported Excellent Q2 Results
The firm’s sales jumped 30.5% versus the same period a year earlier to $458.8 million, and its revenue increased 19.1% year-over-year, excluding acquisitions. Its EBITDA, excluding certain items, came in at $38.2 million, up from $28.3 million in Q2 of 2025.
Valuation and the Bottom Line on KTOS Stock
The company has an elevated forward price-earnings ratio of 81.3 times. But that’s significantly lower than at the end of Q1 and at the end of last year, when the same metric was 135 times and 158.7 times, respectively. And given Kratos’ strong, positive catalysts, its 2027 profits could easily come in well above analysts’ average estimates, making its valuation appear higher than it actually is.
Consequently, growth investors in general and those with long time horizons in particular should consider snapping up this name.
*This article is intended to be informational only; it is not financial advice.
