Kratos’ (KTOS) Strong Performance Lifted Merion Road Portfolio in Q3

Merion Road Capital Management, an investment advisor, released its third-quarter 2025 investor letter. A copy of the letter can be downloaded here. In the third quarter, Merion Road Small Cap Fund returned 5.0% compared to 12.4% return for the Russell 2000 Index. The long-only portfolio of Merion Road returned 10.1% during the quarter compared to the S&P 500’s 8.1% return. The portfolio’s performance was largely driven by the strong performance of Kratos. In addition, you can check the fund’s top 5 holdings to determine its best picks for 2025.

In its third-quarter 2025 investor letter, Merion Road Capital Management highlighted stocks such as Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS). Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is a technology company that offers mission-critical products, services, and solutions. The one-month return of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) was -26.18%, and its shares gained 152.74% of their value over the last 52 weeks. On November 20, 2025, Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) stock closed at $67.31 per share, with a market capitalization of $11.364 billion.

Merion Road Capital Management stated the following regarding Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) in its third quarter 2025 investor letter:

“The Long Only portfolio gained 10% in the quarter. The portfolio was most impacted by the strong performance of Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS), a position I initiated in Q2. The stock nearly doubled in Q3 driven by positive industry developments and company specific releases. In July, Defense Secretary Pete Hegseth announced that the U.S. would ramp production and fielding of drones. In August the company released their Q2 earnings which beat consensus; but the real mover here was commentary around their future outlook. Management identified several large wins post quarter end that will boost Q3 bookings and give increased confidence on their guidance for 2026-2027. They also noted that additional upside lies in tactical drones, which are currently being discussed by customers and would immediately increase revenue and profitability since they are already in production. I have reduced our position into this strength to ensure that it is not oversized.”

Kratos Defense (KTOS) Drops 7.3% as Traders Pocket Gains After All-Time High

Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 33 hedge fund portfolios held Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) at the end of the second quarter, which was 17 in the previous quarter. While we acknowledge the risk and potential of Kratos Defense & Security Solutions, Inc. (NASDAQ: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 Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) and that has 10,000% upside potential, check out our report about this cheapest AI stock.

In another article, we covered Kratos Defense & Security Solutions, Inc. (NASDAQ:KTOS) and shared Baron Discovery Fund’s views on the company. In addition, please check out our hedge fund investor letters Q3 2025 page for more investor letters from hedge funds and other leading investors.

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