Kratos Defense & Security (KTOS +1.80%) stock tumbled 6.3% through 12:30 p.m. ET Monday, its fourth straight day of losses on no obvious bad news. If you ask me, there's only one logical explanation for that:
Kratos stock costs too much.
Image source: Kratos Defense.
What Kratos does
Kratos is one of the best-known producers of military drones right now, a red-hot segment of the defense market. Its marquee products include drones used for target practice, and the XQ-58 Valkyrie Collaborative Combat Aircraft (also known as a "loyal wingman" drone). Both the U.S. Air Force and U.S. Marine Corps are known to have purchased at least a few of the latter for testing, and Kratos is currently partnering with Northrop Grumman (NOC +0.79%) to take the Valkyrie program to the next level.
The company also produces ground systems for satellites and space vehicles, propulsion systems for drones, missiles, loitering munitions, and is actively involved in research and development into hypersonic vehicles and rocket systems.
NASDAQ: KTOS
Key Data Points
How much Kratos costs
Space, hypersonics, and drones? Kratos certainly knows how to be in the right place(s) at the right time to meet Pentagon demand for high-technology military hardware. The problem with Kratos stock is that... this fact is pretty well known at this point, and that knowledge has driven Kratos stock to nosebleed levels.
Kratos shares currently trade at nearly 800 times trailing earnings and more than 200 times what the company is expected to earn over the next 12 months. Worse, the "quality" of these earnings is questionable, as they're not supported by positive free cash flow, causing the company to continue burning cash.
No matter how good a company Kratos might be, at its current share price, Kratos stock is a sell for me.
