Is Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Potentially Undervalued?

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), is not the largest company out there, but it saw a decent share price growth of 12% on the NASDAQGS over the last few months. The company is inching closer to its yearly highs following the recent share price climb. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Today we will analyse the most recent data on Kratos Defense & Security Solutions’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Kratos Defense & Security Solutions

What Is Kratos Defense & Security Solutions Worth?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 18% below our intrinsic value, which means if you buy Kratos Defense & Security Solutions today, you’d be paying a reasonable price for it. And if you believe that the stock is really worth $26.71, then there’s not much of an upside to gain from mispricing. Is there another opportunity to buy low in the future? Since Kratos Defense & Security Solutions’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What kind of growth will Kratos Defense & Security Solutions generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to more than double over the next couple of years, the future seems bright for Kratos Defense & Security Solutions. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? KTOS’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping tabs on KTOS, now may not be the most optimal time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Kratos Defense & Security Solutions at this point in time. Every company has risks, and we've spotted 1 warning sign for Kratos Defense & Security Solutions you should know about.

If you are no longer interested in Kratos Defense & Security Solutions, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.