Kratos Defense & Security Solutions, Inc.'s (NASDAQ:KTOS) Subdued P/S Might Signal An Opportunity

It's not a stretch to say that Kratos Defense & Security Solutions, Inc.'s (NASDAQ:KTOS) price-to-sales (or "P/S") ratio of 2.7x 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 2.3x. 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?

Recent times have been advantageous for Kratos Defense & Security Solutions as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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.

What Are Revenue Growth Metrics Telling Us About The P/S?

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 an exceptional 15% gain to the company's top line. The latest three year period has also seen an excellent 39% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 9.6% per annum during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 3.6% per annum, which is noticeably less attractive.

In light of this, it's curious that Kratos Defense & Security Solutions' P/S sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

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

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.

Despite enticing revenue growth figures that outpace the industry, Kratos Defense & Security Solutions' P/S isn't quite what we'd expect. Perhaps uncertainty in the revenue forecasts are what's keeping the P/S ratio consistent with the rest of the industry. It appears some are indeed anticipating revenue instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Kratos Defense & Security Solutions is showing 1 warning sign in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.