Drone stocks have been doing well in 2025, and Kratos Defense & Security Solutions (KTOS 4.26%) is one of the top performers. It's up 229% on the year as of Oct. 20's market close and has delivered impressive revenue growth -- 17% year over year in its second-quarter earnings.
Those are both positive signs. But if you're thinking about investing in Kratos right now, here's why you may want to reconsider.
Low earnings, high valuation
After the rise in its share price, Kratos now has a market cap of $14 billion. Its net income, on the other hand, was just $16 million last year, and it may not surpass that number in 2025. Over the first six months of 2025, it reported $7.4 million in net income, a 20% year-over-year decrease.
Image source: Getty Images.
Kratos is currently trading at nearly 900 times trailing earnings. To this defense company's credit, it has landed some big contracts recently. Earlier this month, Kratos received a contract worth up to $175 million to upgrade radar systems for the U.S. Navy. And in January 2025, it won a five-year, $1.45 billion contract from the U.S. Department of Defense to develop hypersonic weapons testing.
Paying a premium for growth stocks isn't always a bad decision. Still, Kratos is extremely expensive right now and has only recently begun making a small profit. It could be best to wait for a more reasonable valuation -- and for some growth in this company's bottom line.
