Has Kratos Stock Risen Too Fast After 270% Rally and New Defense Contracts in 2025?

Thinking about what to do with Kratos Defense & Security Solutions stock? You are not the only one. With the company's share price climbing 6.8% over the past week and a stunning 27.0% in just the last month, it has become a hot topic among investors who wonder if the growth story has much further to run. The real jaw-dropper is the longer-term picture: Kratos stock is up 227.1% year-to-date and a remarkable 270.5% in the last year. For those who have held on even longer, the three-year return sits at 749.2% and five-year gains reach nearly 340%, levels that make most portfolios blush.

Much of this incredible run can be traced to defense sector optimism and a wave of renewed government contracts, placing Kratos front and center as national security priorities evolve. But with so much of the good news seemingly priced in, the question naturally shifts to valuation. Is all this momentum justified, or are we getting ahead of ourselves?

Based on six key valuation checks, Kratos currently scores a 0 out of 6 for being undervalued, suggesting that, at first glance, the stock is not a classic bargain. But there is more to valuation than just the simple checks. Let us dig into the different ways you can assess what Kratos shares are really worth, and why some investors think there is an even better way to understand value at play here.

Kratos Defense & Security Solutions scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Kratos Defense & Security Solutions Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a widely used valuation method that estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to today's value. This helps investors gauge what a company is really worth, based on the cash it is expected to generate.

For Kratos Defense & Security Solutions, the DCF approach uses its current free cash flow, which is negative at -$54.2 million, as a starting point. Analysts expect significant improvement in the coming years, projecting free cash flow to turn positive and reach $27.0 million by the end of 2027. Looking further ahead, estimates extrapolate continued growth, with free cash flow potentially climbing to over $105.9 million by 2035. All these cash flows are calculated in US dollars, and future values are discounted back to reflect their worth in today's terms.

After completing this analysis, the estimated intrinsic value per share is $8.74. Compared to the current market price, this implies that the stock is trading at an 886.9% premium to its fair value. In other words, the market price is much higher than what the DCF model suggests it is worth, indicating a high likelihood of overvaluation at current levels.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Kratos Defense & Security Solutions.

Our Discounted Cash Flow (DCF) analysis suggests Kratos Defense & Security Solutions may be overvalued by 886.9%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Kratos Defense & Security Solutions Price vs Sales

The Price-to-Sales (P/S) ratio is often a preferred metric for valuing companies that are not yet consistently profitable, as it focuses on the value investors are placing on each dollar of sales, rather than earnings, which can be sporadic. For companies like Kratos, which have negative or unpredictable earnings but substantial revenue growth, the P/S ratio provides a more stable means of comparison across the sector.

Growth expectations and risk play a key role in determining what a "normal" or "fair" P/S ratio should be. High-growth companies often command richer multiples, while those facing operational or market risks might be discounted. In Kratos' case, the current P/S ratio stands at 12.0x, which is well above the Aerospace & Defense industry average of 2.9x and the peer group average of 3.6x. This signals that the market is assigning a significant premium to Kratos' sales compared to its competitors.

To provide a more nuanced view, Simply Wall St calculates a proprietary "Fair Ratio" for Kratos at 2.5x. Unlike a simple comparison to peers or industry averages, the Fair Ratio considers the company's unique combination of growth prospects, profit margins, risks, size, and industry dynamics. This makes it a stronger benchmark for investors looking for a truly fair valuation.

Given that Kratos trades at a 12.0x P/S, far above its Fair Ratio of 2.5x, the stock appears significantly overvalued on this measure.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Kratos Defense & Security Solutions Narrative

Earlier, we mentioned there’s a better way to understand valuation. Now let’s introduce Narratives. Narratives are a simple, powerful tool that let you frame your investment decision as a story, connecting your personal outlook on a company’s future (like expected sales growth, profit margins, and fair value) directly to a financial forecast. Instead of just relying on traditional valuation metrics, Narratives help you clarify how the facts and your expectations fit together, making it easier to decide when a stock looks cheap or expensive compared to your own fair value estimate.

On Simply Wall St's Community page, used by millions of investors, you can easily create and share Narratives, seeing how your assumptions compare to others'. They update automatically as new information, earnings, or news come in, giving you a dynamic, up-to-date view of a company’s story and value. For example, with Kratos Defense & Security Solutions, one Narrative based on bold revenue and margin growth sees fair value as high as $80 per share, while a cautionary Narrative, expecting slower earnings progress, values it at just $60. Narratives let you choose and defend your own investment premise, so you can move beyond just numbers and invest with real conviction.

Do you think there's more to the story for Kratos Defense & Security Solutions? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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