Kratos Defense & Security Solutions, Inc (KTOS): A Bull Case Theory

We came across a bullish thesis on Kratos Defense & Security Solutions, Inc on Polymath Investor substack by Polymath. In this article, we will summarize the bulls’ thesis on KTOS. Kratos Defense & Security Solutions, Inc’s share was trading at $42.16 as of 18th June. KTOS’s trailing and forward P/E were 324.31 and 79.37 respectively according to Yahoo Finance.

A drone taking off from a commercial warehouse, representing the company’s custom manufacturing capabilities.

Kratos Defense & Security Solutions (KTOS) stands out as a rare publicly traded company offering direct exposure to the rapidly growing tactical drone and unmanned aerial vehicle (UAV) market. Its Unmanned Systems segment, in particular, is the primary reason investors are taking notice.

Positioned in a high-priority niche for the Pentagon, Kratos is investing heavily in next-generation drone and space technologies, which represent critical capabilities for modern defense. These areas are seeing increasing government focus, suggesting strong long-term tailwinds.

However, the aggressive reinvestment into these growth opportunities has kept consolidated profits relatively flat for now. The company’s strategy reflects a long-term vision, with current spending aimed at capturing future defense budgets and technological leadership. Despite the promising outlook, Kratos is not without risks. The unpredictable nature of defense contract timing—where delays or cancellations can significantly impact performance—remains a key concern.

Additionally, the company’s reliance on equity issuance to fund growth introduces short-term dilution, which may deter some investors. Yet, for those who believe in the secular growth of tactical drones and trust in Kratos’s strategic positioning, the company could emerge as a leader in an increasingly vital segment of defense technology.

With few public peers offering this level of exposure to unmanned systems, Kratos presents a unique opportunity to gain early-stage access to a sector likely to see substantial expansion, driven by evolving military needs and increasing autonomy in combat systems. As such, the current period of heavy investment may eventually give way to meaningful returns, making Kratos a compelling long-term play.

Previously we covered a bullish thesis on Kratos Defense & Security Solutions, Inc. (KTOS) by Kooky_Lime1793 in January 2025, which highlighted the company’s $1.45 billion hypersonic test contract, growing prominence in autonomous military drones, and partnerships with RocketLab and Leidos. The company’s stock price has appreciated approximately by 47% since our coverage. This is because the thesis played out with strong government backing and strategic execution. The thesis still stands as Kratos remains well-positioned in defense innovation. Polymath shares a similar outlook but emphasizes Kratos’ long-term positioning in tactical drones despite current profit headwinds.

KTOS isn’t on our list of the 30 Most Popular Stocks Among Hedge Funds. While we acknowledge the risk and potential of KTOS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than KTOS and that has 10,000% upside potential, check out our report about this cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.