Kratos Defense & Security Solutions, Inc.'s (NASDAQ:KTOS) Share Price Matching Investor Opinion

It's not a stretch to say that Kratos Defense & Security Solutions, Inc.'s (NASDAQ:KTOS) price-to-sales (or "P/S") ratio of 2x right now seems quite "middle-of-the-road" for companies in the Aerospace & Defense industry in the United States, where the median P/S ratio is around 1.9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for Kratos Defense & Security Solutions

What Does Kratos Defense & Security Solutions' P/S Mean For Shareholders?

With revenue growth that's superior to most other companies of late, Kratos Defense & Security Solutions has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If the company manages to stay the course, then investors should be rewarded with a share price that matches its revenue figures.

Want the full picture on analyst estimates for the company? Then our free report on Kratos Defense & Security Solutions will help you uncover what's on the horizon.

How Is Kratos Defense & Security Solutions' Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Kratos Defense & Security Solutions' to be considered reasonable.

Retrospectively, the last year delivered a decent 15% gain to the company's revenues. The solid recent performance means it was also able to grow revenue by 29% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 10.0% each year as estimated by the ten analysts watching the company. That's shaping up to be similar to the 8.9% per annum growth forecast for the broader industry.

With this information, we can see why Kratos Defense & Security Solutions is trading at a fairly similar P/S to the industry. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

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

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.

A Kratos Defense & Security Solutions' P/S seems about right to us given the knowledge that analysts are forecasting a revenue outlook that is similar to the Aerospace & Defense industry. Right now shareholders are comfortable with the P/S as they are quite confident future revenue won't throw up any surprises. All things considered, if the P/S and revenue estimates contain no major shocks, then it's hard to see the share price moving strongly in either direction in the near future.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs 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).

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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.