Kratos Defense & Security Solutions, Inc.'s (NASDAQ:KTOS) P/S Is On The Mark

When close to half the companies in the Aerospace & Defense industry in the United States have price-to-sales ratios (or "P/S") below 2.6x, you may consider Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) as a stock to potentially avoid with its 3.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for Kratos Defense & Security Solutions

How Has Kratos Defense & Security Solutions Performed Recently?

With revenue growth that's inferior to most other companies of late, Kratos Defense & Security Solutions has been relatively sluggish. It might be that many expect the uninspiring revenue performance to recover significantly, which has kept the P/S ratio from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Kratos Defense & Security Solutions' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Kratos Defense & Security Solutions?

In order to justify its P/S ratio, Kratos Defense & Security Solutions would need to produce impressive growth in excess of the industry.

Retrospectively, the last year delivered a decent 11% gain to the company's revenues. The latest three year period has also seen an excellent 40% overall rise in revenue, aided somewhat by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 11% per annum during the coming three years according to the twelve analysts following the company. That's shaping up to be materially higher than the 3.1% each year growth forecast for the broader industry.

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.

What We Can Learn From Kratos Defense & Security Solutions' P/S?

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the 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. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Kratos Defense & Security Solutions that you should be aware of.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.