Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) Stocks Shoot Up 26% But Its P/S Still Looks Reasonable

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 135% following the latest surge, making investors sit up and take notice.

After such a large jump in price, when almost half of the companies in the United States' Aerospace & Defense industry have price-to-sales ratios (or "P/S") below 3.3x, you may consider Kratos Defense & Security Solutions as a stock not worth researching with its 6.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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Check out our latest analysis for Kratos Defense & Security Solutions

What Does Kratos Defense & Security Solutions' Recent Performance Look Like?

Kratos Defense & Security Solutions could be doing better as it's been growing revenue less than most other companies lately. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Kratos Defense & Security Solutions.

Do Revenue Forecasts Match The High P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as steep as Kratos Defense & Security Solutions' is when the company's growth is on track to outshine the industry decidedly.

If we review the last year of revenue growth, the company posted a worthy increase of 7.4%. This was backed up an excellent period prior to see revenue up by 43% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 16% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 8.2% each year, which is noticeably less attractive.

With this information, we can see why Kratos Defense & Security Solutions is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Kratos Defense & Security Solutions' P/S

Kratos Defense & Security Solutions' P/S has grown nicely over the last month thanks to a handy boost in the share price. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our look into Kratos Defense & Security Solutions shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 1 warning sign for Kratos Defense & Security Solutions that we have uncovered.

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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.