Why Kratos Defense & Security Solutions Stock Jumped Another 12% in June

UTAP-22 Mako drone

What happened

Shares of tiny defense contractor Kratos Defense & Security Solutions (NASDAQ: KTOS) climbed another 11.6% in the month of June, adding to the big 35% gain the stock enjoyed in May.

So what

Why is Kratos' stock gaining altitude? Let me count the ways. Kratos had three big announcements come out last month, beginning with a June 6 order for six "High Performance Unmanned Aerial Drone System Aircraft" from an unspecified "government customer" for an unspecified price.

One week later, on June 13, Kratos announced that it would debut its XQ-222 Valkyrie and UTAP-22 Mako jet-powered combat drones. Both drones boast "near supersonic speeds" and the ability to carry weapons, and "are designed to function as wingmen to manned aircraft in contested airspace." Kratos noted that both drones will sell for between $2 million and $3 million per unit, with the higher figure presumably attaching to the larger Valkyrie drone. Valkyrie was developed to under Air Force Research Labs' Low Cost Attritable Aircraft Technology (LCAAT) program. It is 30 feet long, and can fly more than 3,000 nautical miles before refueling. It's expected to make its first flight next spring.

Finally, toward the end of the month, Kratos confirmed that the U.S. Navy has placed an order for $34.6 million worth of its BQM-177A Subsonic Aerial Target (SSAT) Drone Systems, and awarded the company a further $2.5 million in funding to provide logistics support for the SSATs.

Now what

The SSAT contract in particular promises to push Kratos toward its promised goal of turning profitable in the second quarter of this year -- which is good news for investors, who may have difficulty valuing Kratos' stock with its currently negative P/E ratio. Meanwhile, the "high performance" and combat drone announcements hold out the promise of growing profits for years to come.

How fast those profits grow will determine whether Kratos' P/E ratio is justified -- once it finally turns positive.

10 stocks we like better than Kratos Defense and Security Solutions

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Kratos Defense and Security Solutions wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of June 5, 2017

Rich Smith has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.