What happened 

Defense services contractor Kratos Defense & Security Solutions (NASDAQ:KTOS) outpaced the market last month by gaining 11% compared to a 0.4% increase in the S&P 500, according to data provided by S&P Global Market Intelligence.

^SPX Chart

^SPX data by YCharts.

The rally pushed shares deeper into positive territory, with the stock up about 30% so far in 2018.

So what

Kratos' latest earnings report, issued in early August, contained evidence of modest operating improvements. Sales inched higher by 2% and adjusted profitability improved to 8% of sales from 7% a year earlier. 

A military drone in flight.

Image source: Getty Images.

But investors are more excited about future growth, since the company has ramped up its pace of contract awards recently. A new project with the Pentagon, for example, promises to significantly boost revenue in its unmanned aerial systems segment.

Now what

Kratos hasn't yet hit its goal of returning to bottom-line profitability, but these new contracts should help in that regard. As for the immediate future, CEO Eric DeMarco and his team are projecting a roughly 7% sales uptick in fiscal 2018. The company might not generate positive earnings, meanwhile, but executives do believe they'll produce cash flow of as much as $45 million this year. 

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